Annual Report 2007

Powerful Brands Innovative Products Exceptional People Operational Excellence

Stock Code: 669 A Leadership Platform

TTI is a world-class leader in quality consumer and professional products marketed to the home improvement and construction industries. An unrelenting strategic focus on powerful brands, innovative products and exceptional people drives our success.

TTI’s powerful brand portfolio includes Milwaukee®, AEG® and Ryobi® power tools and accessories, Ryobi® and Homelite® outdoor products, and Hoover®, Dirt Devil® and Vax® ﬂ oor care appliances. Our products are distributed through major home centers and retailers, full-line tool distributors and other channels worldwide.

Our culture of innovation, ﬁ rm commitment to R&D and extensive customer insight ensure our leading brands and high-quality products meet the speciﬁ c needs of the customers, consumers and professionals that we serve and deliver long-term value to our shareholders.

Contents 1 Financial Highlights 26 Global Management 57 Independent Auditor’s Report 2 Chairman’s Statement 28 Board of Directors 58 Consolidated Financial Statements 10 Chief Executive Ofﬁ cer’s Message 34 Management’s Discussion and Analysis 66 Notes to the Consolidated Financial Statements 16 Review of Operations 39 Corporate Governance Report 135 Financial Summary • Power Equipment 46 Directors’ Report 136 Corporate Information • Floor Care Financial Highlights

2007 2006 2007 2006 Changes HK$ m HK$ m US$ m US$ m %

Operations Turnover 24,775 21,823 3,176 2,798 +13.53% Gross profit 7,809 6,893 1,001 884 +13.29% EBITDA 1,219 2,098 156 269 -41.90% EBITDA (before restructuring costs and other restructuring and transition costs) 1,962 2,098 252 269 -6.48% Profit attributable to equity holders of the parent 125 1,072 16 137 -88.34% Profit attributable to equity holders of the parent (before restructuring costs and other restructuring and transition costs) 868 1,072 111 137 -19.03% Basic earnings per share (HK/US cents) 8.41 73.18 1.08 9.38 -88.51% Basic earnings per share (HK/US cents, before restructuring costs and other restructuring and transition costs) 58.27 73.18 7.47 9.38 -20.37% Dividend per share (HK/US cents) 8.00 19.10 1.03 2.45 -58.12%

Financial position at year end Total assets 24,969 21,320 3,201 2,733 +17.12% Net current assets 2,971 5,642 381 723 -47.34% Equity attributable to equity holders of the parent 6,920 6,997 887 897 -1.10% Capital expenditure 860 473 110 61 +81.82% Net book value per share (HK$/US$) 4.61 4.78 0.59 0.61 -3.56%

TTI’s Growth Continues

2007

Sales 2007 (US$m)

2005 3,000

2005 2,100 2,000 2003 1,800 1,600 2002 1,400 1,200 2000-2004 1,100 1999 800 500 400 1999 2000 2001 2002 2003 2004 2005 2006 2007

Techtronic Industries Co. Ltd. Annual Report 2007 Chairman’s Statement

2007 Performance Highlights

• Record Sales • Growth in Power Tools and Floor Care • Gross Margin Strengthened in Core Business • Hoover Integration Completed • Strategic Repositioning Plan on Track

Record Sales TTI Group achieved record sales in 2007 of HK$24.8 billion, 13.5% over the prior year. This growth has been achieved in a challenging macroeconomic environment in the United States as we begin to see the rewards from the Group’s strategic acquisitions and restructuring.

During the year, we strengthened our market leadership position in North America as Hoover and Stiletto joined our powerful brand portfolio. Strong growth momentum was maintained in Europe and with the appointment of a new management team there, as well as in the Middle East, Canada, Latin America, and Australia, we are positioned for continued growth in our international operations. We also took steps to develop the best management talent within TTI by introducing our college recruiting activities and “Leadership Development Program.”

Growth in Power Tools and Floor Care The 2007 sales increase was aided by an 11 months contribution of the Hoover acquisition. Our Floor Care business expanded 67.8% with the acquisition, and the core Floor Care business maintained positive underlying momentum, growing at a mid single-digit rate. New innovative products boosted our Power Tool business delivering low single-digit growth in both professional and consumer segments. We exited non-strategic businesses in the Outdoor Products category, resulting in an overall decline of sales in the Power Equipment division.

Techtronic Industries Co. Ltd. Annual Report 2007 The hard work from the Hoover integration and the Strategic Repositioning Plan are positioning TTI for profitable growth.

Horst Julius Pudwill Chairman

Techtronic Industries Co. Ltd. Annual Report 2007 Chairman’s Statement

Gross Margin Strengthened in Core Business The Company delivered an improved gross margin for the core business in a difficult cost environment. With Hoover, our consolidated gross margin of 31.5% was comparable to 31.6% in the prior year. The introduction of new products, ongoing programs for cost containment, leveraging our scale, and improved operational efficiencies offset rising commodity prices and inflationary pressures.

Investing in Marketing and R&D The operating margin before restructuring and transition costs narrowed in 2007 due to the acquisition and the planned investment increase in sales, marketing, and R&D activities. We expect the SG&A spend will support stronger and more profitable growth going forward. Our product innovation stream will benefit from the increase in R&D spending from 2.0% in 2006 to 2.2% in 2007 of sales.

Strategic Repositioning Plan on Track The Strategic Repositioning Plan, which we announced in August 2007, is an important initiative for the future growth and profitability of the Company.

HK$743.02 million of restructuring and transition costs were charged against 2007 earnings. These included the costs to close Hoover’s North Canton, Ohio manufacturing facility and relocate manufacturing to Texas, Mexico, and China, plus the closure of two Milwaukee manufacturing facilities in North America. We are anticipating annual savings of approximately HK$550 million (US$70 million) resulting from the restructuring activities when completed.

Profit attributable to equity holders of the parent for 2007 totaled HK$125.26 million after restructuring and transition costs. Before restructuring and transition costs, earnings per share was HK58.27 cents. EPS after restructuring and transition costs was HK8.41 cents.

The Directors have recommended a final dividend of HK1.50 cents per share for the year ended December 31, 2007 (2006: HK 12.60 cents) payable to the Company’s shareholders whose names appear on the register of members of the Company on May 30, 2008. Subject to the approval of the shareholders at the forthcoming Annual General Meeting of the Company, the proposed final dividend is expected to be paid on or about July 31, 2008. This payment, together with the interim dividend of HK6.50 cents per share paid (2006: HK6.50 cents) on September 28, 2007, makes a total payment of HK8.00 cents per share for 2007 (2006: HK19.10 cents).

Techtronic Industries Co. Ltd. Annual Report 2007 Sales by Product

Power Tools 68%

Floor Care 32%

New Product Focus on Cordless Power Tools Our Power Tools and Accessories business experienced stronger second half growth in 2007. This was due to the successful launch of new lithium ion battery cordless tools and strong sales in Europe. Milwaukee improved against prior year in the second half and AEG continued its solid expansion. Sales of Ryobi branded consumer tools benefited from the launch in the second half of the green lithium battery line of tools, along with the continuing success of the One+System. We are driving product development in all businesses through our “Strategic Business Unit” (SBU) process that has established global platforms and directs development to the highest-impact programs.

Hoover Integration Completed The Floor Care business achieved positive sales growth in 2007 from the core business. The addition of Hoover to our brand portfolio is strategically important to providing a premium brand platform for future expansion. A timely integration of Hoover was a key priority in 2007 and as a result, we have greatly reduced manufacturing costs. We anticipate this turnaround to provide profit contribution in the future years.

Techtronic Industries Co. Ltd. Annual Report 2007 Chairman’s Statement

Positive Outlook Our goal is to be number one in the industries we serve and we will continue to focus on our Strategic Drivers of Powerful Brands, Innovative Products, Exceptional People, and Operational Excellence. Delivering innovative new products to our customers remains the foundation of our business and last year we were delighted with the performance of our new lithium ion cordless tools and lightweight outdoor gas products. We consider our brand portfolio to be the best in our industry providing tremendous opportunities for future geographic, new product, and business segment expansion.

Our concentration in 2008 will be the continued execution of the Strategic Repositioning Plan as we turn to our European operations, expanding the product categories and reach of our strong brand portfolio, and advancing the rigor of developing and marketing innovative products. At TTI, starting at the highest levels, we continue to nurture our strategic partnerships with major retailers and key customers. We expect some benefits in 2008 from our restructuring and are confident of achieving stronger growth in 2009 and beyond.

Great Brands in our Businesses Our Power Tool, Outdoor Product, and Floor Care businesses benefit from exceptional brands that professionals and consumers trust. We expect to further our market leading position in North America during 2008 with the planned introduction of new innovative products. Outside the U.S. we expect sales expansion supported by continued growth of the Canadian economy and our intensified marketing efforts

Sales by Geographic Location

North America 73%

Europe 23%

Rest of World 4%

Techtronic Industries Co. Ltd. Annual Report 2007 in Europe, the Middle East, Latin America, and Australia. As a result, the Company has achieved double-digit revenue growth in the first quarter of 2008 and expects such growth to be maintained over the year.

New CEO Joe Galli, our newly appointed Chief Executive Officer, successfully led the acquisition and integration of Hoover. Under his guidance, leaders in our geographic, brand, product, and operational business units are seizing the opportunities for growth, product innovation, and operational efficiencies with enthusiasm. We recognize leadership development and a career roadmap are important to our employees who are the engines of our business. TTI is excited about our new initiatives that will grow our employee capital such as the Milwaukee global training center.

I would like to close by thanking our employees for their passionate commitment to profitably growing our business and making TTI recognized as the world leader in our industries. I thank my fellow directors for their advice and thoughtful approach to governance and oversight. Finally, we sincerely appreciate the support of our shareholders, customers, and partners.

Horst Julius Pudwill Chairman

Techtronic Industries Co. Ltd. Annual Report 2007 Powerful Brands

Chief Executive Officer’s Message

I am highly encouraged by the progress our team is making throughout TTI’s business units and operations worldwide. Momentum is building through all parts of this company.

Joseph Galli Jr Chief Executive Officer

10 Techtronic Industries Co. Ltd. Annual Report 2007 TTI is a company with an exciting future! We have built a leadership “platform” of high-potential business units, strong marketing companies, and world class manufacturing facilities around the globe. We plan to capitalize on the vast potential of this platform by implementing our Strategic Roadmap for success. This Strategic Roadmap focuses on four elements:

1. Powerful Brands 2. Innovative Products 3. Exceptional People 4. Operational Excellence

With the addition of the Hoover and the Stiletto brands in 2007, we now have a tremendous portfolio of Powerful Brands. We will build these brands with comprehensive marketing programs worldwide. These marketing initiatives are designed to build strong end-user preference for TTI brands.

The best way to build brands is to fuel these brands with a continuous stream of innovative, value-added, demonstrably better new products. TTI is a new product machine! We have a global network of “Innovation Centers” teeming with talented engineers and product managers who are focused on new product development. We increased our R&D spending in 2007 by 25% to drive an even greater flow of new products. You will see a growing number of high-impact new product launches in 2008 and beyond. This Annual Report showcases a fraction of our 2008 new product flow.

We believe Exceptional People drive exceptional results. Over the past year we have focused on building a stronger management. We have blended a mix of outstanding TTI veteran managers together with an impressive group of highly regarded managers recruited from outside. We now have a strong management team in place leading this company. When you read the list of names on the TTI team in this report, you can see why we feel fortunate to have so much talent in one company!

TTI has launched a comprehensive campus recruiting program to build a talent pool of exceptional people for the long-term. We recruited 155 outstanding college graduates in a variety of functional areas in 2007. We formed the Leadership Development Program (LDP) to formally develop and mentor the fresh recruits to prepare them for future assignments.

We are rolling out a company wide Operational Excellence initiative. TTI’s Operational Excellence initiative represents an obsession to improve quality, offset inflation and lower costs, improve our business processes, and establish targets and metrics for key deliverables. We will monitor our progress through the TTI Operating Cycle series of annual, semi-annual, and quarterly reviews. We believe we have immense opportunity to “Raise the Bar” and take our execution to the next level.

Although TTI is a company with a rich history of success, our Strategic Roadmap will ensure that our best times are ahead of us.

In closing, I would like to thank Horst Pudwill for his tremendous support. Horst has been a remarkable mentor, advisor, motivator, and new idea catalyst for me since I joined TTI. I am extremely grateful that I am able to work closely with Horst as we build TTI in the years ahead.

Joseph Galli Jr Chief Executive Officer

Techtronic Industries Co. Ltd. Annual Report 2007 11 Chief Executive Officer’s Message Our Strategic Roadmap

TTI has a strategic foundation comprised of four POSITIONED FOR GROWTH initiatives that steer our competitive advantages.

Over the past several years the Company concentrated on developing business practices that aligned with these initiatives. OPERATIONAL Facing demands of a globally expanding business the size of EXCELLENCE TTI, we created a clear Roadmap that we expect will deliver sustained profit growth. This Roadmap aims beyond TTI as we know it today to the world class company we envision for EXCEPTIONAL our future. PEOPLE

INNOVATIVE PRODUCTS

POWERFUL BRANDS

Strategic Roadmap Gross Margin Enhancement: Offset Generate Free Cash Flow Inflation + Improve Gross Margin • Complete restructuring • Gross Margin Enhancement • High margin new products • Complete new China Campus • Hoover restructuring • Increase EBIT • Milwaukee restructuring • Reduce working capital as a % of sales • Drive Double-Digit Sales Growth • New China Campus • Reduce fixed capital as a % of sales • Comprehensive TTI productivity • Generate Free Cash Flow initiative Organizational Development • Global manufacturing plan • Build a team of Exceptional People • Organizational Development • Create a sustaining resource of Drive Double-Digit Sales Growth leadership and technical talent • Operating Cycle Deployment • Invest in R&D • New China Innovation Center Operating Cycle Deployment • Global Floor Care R&D Center • Annual: Strategic Planning, • Cordless product leadership Organization Review and Budget • Start-up new business • Semi-Annual: Global Product Summits • Geographic expansion • Quarterly: Operations Reviews • New product vitality rate • Monthly: Financial Management Reports

12 Techtronic Industries Co. Ltd. Annual Report 2007 TTI World Wide

Canada Europe asia • Power Equipment and Floor Care • Power Equipment • TTI World Wide Headquarters - Sales and Marketing - Sales and Marketing • Power Equipment and Floor Care - Research and Development - Sales and Marketing - Manufacturing - Research and Development • Floor Care - Manufacturing - Sales and Marketing

United States Middle East, Africa, australasia • Milwaukee Professional Tools Indian Subcontinent • Power Equipment and Floor Care - Sales and Marketing • Power Equipment and Floor Care - Sales and Marketing - Research and Development - Sales and Marketing - Manufacturing • Consumer and Trade Tools - Sales and Marketing Latin America - Research and Development • Power Equipment and Floor Care • Outdoor Products - Sales and Marketing - Sales and Marketing - Research and Development - Manufacturing • Floor Care - Sales and Marketing - Research and Development - Manufacturing

Techtronic Industries Co. Ltd. Annual Report 2007 13 Innovative Products

The Stiletto TiBone 14oz Titanium Hammer drives nails like a 24oz steel hammer. It’s 15 ¼” Titanium handle is incredibly strong, powerful, and lightweight and provides 10 times less recoil shock than steel! It also features a magnetic Nail Starter and a Patented Side Nail Puller.

The Homelite 20” Chainsaw is powered by a 46cc 2 cycle gas engine providing increased durability and professional performance. Innovations include a 3-point vibration isolation for operator comfort and less fatigue, automatic chain oiler and an inertia activated chain brake for the ultimate in safe performance. Products

The 15.0 Amp Super Sawzall Recip Saw is the fastest, most durable Recip Saw in the world. It is the first Sawzall Recip Saw to include Constant Power Technology which maintains constant speed and power under load for unmatched cutting performance.

The heavy duty 1200W 5kg Combi-Hammer Drill combines the best innovations from AEG including AVS that significantly reduces vibration for comfortable, safer handling and FULL-WAVE ELECTRONICS alternating voltage for optimized efficiency amongst a myriad of other advanced features, making it one of the most versatile innovative products in its class. Review of Operations

Power Equipment

• Power Tools Delivered Low Single-Digit Growth • Europe Expanded Nearly 20% • Outdoor Products Improved Profitability

Division Turnover

Power Equipment 68%

Floor Care 32%

– Professional and consumer power tool segments grew – Milwaukee manufacturing transfers and restructuring on track – Strategic retail partnerships in key markets – Lithium ion launched across all power tool brands – Ryobi Hyper-green lithium ion power tools expand One+System – Homelite Mightylite products delivered market gains – Ryobi One+System expanded into outdoor products – Re-entry into gas powered chainsaws and pressure washers – Stiletto integrated – Core management teams strengthened

16 Techtronic Industries Co. Ltd. Annual Report 2007 The Power Equipment business, which includes Power Tools & In the professional segment, the combined sales of Milwaukee Accessories, and Outdoor Products experienced growth in the and AEG delivered high single-digit growth in the 2nd half of back half of 2007 despite worsening market conditions in our 2007. Full year sales grew by a low single-digit rate. Milwaukee core North American market. Successful new product launches was able to capitalize on the commercial construction market as well as efforts to expand our business in other geographic which helped offset the weakness in the residential construction regions led the way for growth. For the full year, sales was at market. The advanced Milwaukee lithium ion battery technology HK$16.88 billion or a decline of only 1.4% against last year. was extended with the launch of a range of compact tools: the Profit margin for the full year before restructuring and transition 18V lithium ion cordless compact driver drill, the 12V lithium ion costs was at HK$1.23 billion or a decline of 16.2% resulting cordless sub-compact driver, and the 4V lithium ion cordless primarily from strategic investments in R&D and advertising. screw driver. We also implemented an enhanced product development process, ‘VIGOR’, in line with the group’s global cross-function strategy for Milwaukee. VIGOR significantly Power Tools & Accessories increases speed-to-market for new products, actively leverages innovation across categories, and places greater focus Operations Review on end-user research, ensuring a steady flow of innovative new For the full year 2007, Power Tools & Accessories experienced products that addresses the needs of our customers. growth on the back of our powerful brands and lithium ion battery platforms.

Milwaukee 12V Lithium ion Milwaukee 18 Volt Mspector Digital Inspection Camera Compact Drill Delivers professional users Milwaukee 18V lithium ion unsurpassed image quality for compact driver drill delivers accurate diagnosis, digital zoom for superior performance in a up-close inspection, and the latest compact package. Powered in lithium ion battery technology for by Milwaukee’s innovative up to three times the run-time on lithium ion battery one battery charge. The Mspector is technology, this world class the second introduction of the leading tool delivers up to Milwaukee 12V lithium ion cordless three times the number of system, allowing users to battery charges, two times interchange batteries amongst a the battery life, and series of class-leading unparalleled performance in Milwaukee professional a tool this size. The first in a compact cordless tools. series of innovative 18V lithium ion products sure to change the way users view professional cordless.

Techtronic Industries Co. Ltd. Annual Report 2007 17 Review of Operations Power Equipment

AEG performed well in Europe as well as the Middle East and the year with positive retail sell-through results. The year’s Africa benefiting from the new product launches of large high-profile launch was the Ryobi branded 18V lithium ion line of hammers, angle grinders, and new cordless drills. We expect Hyper–green tools in North America in the second half of 2007. AEG brand tools to be a growth platform in Europe and The launch was supported by a successful marketing campaign developing markets as the product range is refreshed and and achieved sales well ahead of expectations. The new 18V expanded with new products. lithium ion battery uses the same battery platform as the existing One+System, a favourite with re-modellers and value conscious TTI introduced twelve new RIDGID lithium ion tools positioned pro users. The popularity of the One+System coupled with the as best-in-class including a super-compact drill driver using a introduction of lithium ion technology deliver true professional new 12V lithium ion battery platform. The new 12V drill driver quality performance at highly competitive prices. combines powerful lithium ion technology with an innovative integrated clutch and chuck system ensuring the tools’ Our contract manufacturing business remains an area of performance and versatility outperform the competition in the importance. The Sears Craftsman brand and other key 12V cordless class. RIDGID power tools have become a true customers have benefited from the lithium ion technology and professional power tool force on the residential construction other new product innovations created by TTI. The US economy job site. has impacted this business segment’s customers; however the customer mix is broad and opportunities for expansion are in In the consumer segment, Ryobi branded tools grew by almost the product development plans. a double-digit rate for the full year. New product launches and an aggressive marketing campaign fuelled the growth. A total Our Accessories business remained an important contributor of 27 new Ryobi branded products were launched throughout of both sales and profit. We expect Accessories will continue

Ryobi 12V Lithium ion Drill The Ryobi branded 12V lithium ion drill provides 4 times the run time, is 30% lighter and more compact than its predecessor, a true innovation leader in the 12V class.

Ryobi Lithium ion Conversion Kit The new Ryobi branded One+ lithium ion battery upgrade kit is perfect for the One+ user who already has several One+ tools but wants the enhanced performance of a lithium ion battery.

18 Techtronic Industries Co. Ltd. Annual Report 2007 to show strong scope for growth. Milwaukee launched its first delivering innovative new products, and Operational Excellence wave of new accessories last year and has a pipeline of new has solidified key relationships in the US, Canada, France, and products being developed. The Ryobi brand was backed by many other markets. Our ability to provide large-scale retailers sales of innovative multi-piece sets and promotions through with assured product diversity, quality guarantees, as well as their high-volume DIY retail customers. Our commitment to high-impact marketing and merchandising, store service, and OEM customers in carbide drilling is important and provides an product training are important aspects to driving business with opportunity for future growth. our partners.

Further restructuring and consolidation of the Milwaukee and Outlook AEG operations continued to drive cost savings as we execute Growth in core categories is expected from unrelenting our plans. Added efficiency gains have been made in investment in new product technology platforms and innovative coordinating our new product development process, R&D, and solutions for both tools and accessories. We have established international Concept Centers. The resulting improvements in a stable platform to build on our successes in our core product new product speed-to-market and customer-centric innovation categories while continuing to expand into new markets. The processes are already delivering both efficiencies and TTI brand portfolio is the strongest in our industries and our competitive benefits. brands are aimed at end-user segments.

A strengthening of our commitments and partnerships with In logistics and manufacturing, we have a mature, highly important customers in the UK and Australia reflects efficient, and well-managed production base with associated a commitment TTI makes towards our partners around the supply partnerships in China’s Pearl River Delta. The new Asia world. The focus on creating brand value with end-users, manufacturing campus and Innovation Center will bring efficiencies and quality enhancements.

AEG 12V Compact Drill Driver The AEG drill driver powered by 12V lithium ion battery technology delivers superior torque and versatility through Ryobi Lithium ion innovative compact Combo Kit design. The four piece combo kit has all the basic tools for any do-it-yourselfer, remodeler, or pro.

Techtronic Industries Co. Ltd. Annual Report 2007 19 Review of Operations Power Equipment

The foundations are now in place for rapid geographic The year’s highlight was the launch of the Mightylite range under development and expansion in Canada, the Middle East, Eastern the Homelite brand. This included entering a new product Europe, Latin America, and Australia, all of which offer potentially category of gas hedge trimmers. Fundamental to this was the strong growth. We will maintain our drive for leadership successful development of an emissions efficient, lightweight through innovation, leveraging the group’s many cross-brand 26cc engine, which resulted from the close cooperation between product development and technology synergies, and we will our US and China product development centers. In the US, strive for ongoing cost reductions through a continuing we introduced under the Ryobi brand the Quick-Fire Carburetters commitment to the Group’s Cost Improvement Program. making engine starts significantly easier and more efficient. Other highlights included the launch of Homelite blowers, and the world wide expansion of the Ryobi One+ program into Outdoor Products Outdoor Products.

Operations Review In Europe and other markets outside of North America, the Outdoor Products margins improved in 2007 despite a decline distribution reach of Power Tools has laid the groundwork for in sales. Gains in operational efficiencies as well as better mix our brands to become leaders in gas powered Outoor Products from our new products contributed to the profit growth. categories. Mightylite was successfully launched in the UK, Sales declined due to a strategic temporary withdrawal from continental Europe, and other key markets. The new distribution pressure washers and chainsaws. We will re-enter these network in Eastern Europe and Russia is now successfully categories in 2008 and we expect to more than regain lost marketing Homelite. market share.

Homelite Electric Range The new Homelite electric powered range of products offers features and benefits which allow for comfortable operation and versatility. The newly launched range covers all main Outdoor Product categories including, chainsaws, blowers, trimmers, shears, and pruners.

20 Techtronic Industries Co. Ltd. Annual Report 2007 Our Product Development has been brought together through Outdoor Products will benefit from the geographical expansion the outdoor product SBU process, which enabled the business of TTI. The new and refocused regions will be important markets to be focused on global platforms and driving innovation. for our Homelite and Ryobi branded gas products. Additionally, our contract manufacturing business has new opportunities Outlook with our 26cc engine technology and future developments The Outdoor Products business is positioned for growth in 2008 currently underway. The organization will be moving aggressively with significantly impactful new products being launched to seize many of these opportunities and to deliver new throughout the year. Key milestones will be the launch of a business. complete range of Homelite portable electric products and new gas powered chainsaws and pressure washers in North America. The pressure washer program is comprehensive and innovative, launched in early 2008 with additional products planned for later in the year. The first half of 2008 will be marked by the introduction of the user-friendly Touch Start gas powered string trimmer. This will then be followed later in the year by a range of electric start products which uses the Ryobi 12 volt battery pack.

Ryobi Outdoor – Touch Start Trimmer The Ryobi branded Touch Start gas trimmer is the first electric start trimmer on the market. Its 12V cordless on board electric start system allows users to start the 30cc gas engine at the touch of a button for the ultimate in efficiency and convenience.

Techtronic Industries Co. Ltd. Annual Report 2007 21 Review of Operations

Floor Care

• Sales Growth in Core Business • Integration of Hoover Completed • Global R&D Center Established

Division Turnover

Power Tools 68%

Floor Care 32%

– Hoover integration positions the business for profitability – Consolidation improves cost efficiency, productivity, and customer service – Global R&D Center opened in Ohio, US – Introduced an improved NPD process – vax continues expansion – Dirt Devil Designer Series gains market share in US

22 Techtronic Industries Co. Ltd. Annual Report 2007 The Floor Care business, led by our brands Dirt Devil, Vax, and the coordination and/or transfer of logistics, supply chain, the newly acquired Hoover grew 67.8% in 2007 with a combined production, and technology on an international scale. The sales of HK$7.90 billion. Without Hoover, sales was at HK$4.92 restructuring included integrating production in North Canton, Ohio billion or a growth of 4.5%. Increased national advertising as into TTI’s Texas, Mexico, and current PRC manufacturing well as focused retail account management contributed to the facilities. Logistics was also consolidated alongside the other growth. Global commodity inflation had a negative impact in businesses, and the Division’s leadership team was significantly our profit margins and was partially offset by new product strengthened with the addition of proven industry experts. introductions and better product line management. Profit margin We have now set the stage for Hoover’s future profitable growth. before restructuring and transition costs was at HK$178 million In North America, the Hoover and Dirt Devil product ranges excluding Hoover. Including Hoover, profit margin before were updated during the year leveraging the combined product restructuring and transition costs was at HK$147 million and technology portfolios. In addition, non-performing products reflecting Hoover’s less efficient operations. were systematically phased out. Apart from the Nano-Lite and new derivatives of the WindTunnel Cyclonic model, no new Operations Reviews major platforms were launched under the Hoover brand during The restructuring and integration of Hoover to our Floor Care 2007 as the Division prepares the brand for its major re-launch division was completed ahead of schedule. The integration in 2008. provided an excellent testing ground for TTI’s global management structure which proved successful on all levels; encompassing

Techtronic Industries Co. Ltd. Annual Report 2007 23 Review of Operations Floor Care

Dirt Devil continues to ride on the success of its high margin improved its market position on the back of an aggressive new Designer Series, featuring new cordless models designed by product stream. Key new product ranges have leveraged the world-famous New York-based product designer Karim Rashid. technologies acquired under the Hoover acquisition, with the This has contributed to a market share increase in the past two Mach 6 and the All Terrain, the Vax brand’s hero products of years. During the year, both the Kruz hard floor cleaner and the the year. The brand also achieved strong growth in Russia and Kurv hand held cleaners were added to the Designer Series Eastern Europe. line-up. This has firmly repositioned Dirt Devil as a design-conscious and aspirational brand. Already, there is strong We completed a global reorganisation of engineering and retailer anticipation ahead of the 2008 Designer Series product development resources in 2007. A new R&D center introductions of the Brum and the Kwik and we expect further was completed in TTI Floor Care’s North America headquarters growth in this category. in Ohio to consolidate R&D activities for all our brands and OEM businesses globally. In the UK, the Vax brand continued to enjoy market-leading success in its core bagless cylinder and carpet washer product This investment will enable a more robust new product pipeline categories, achieving double-digit sales growth. Vax has further and will centralize the Group’s design development to leverage our market-leading technology capability globally. Vax is already benefiting from the globalization of our product development and technology sharing processes, which will see the brand strengthen with the introduction of several new product categories during 2008.

Dirt Devil Designer Series: Designed by famed product designer, Karim Rashid, all products in the Designer Series line have an elegant, sculptural form. The beauty of these tools give consumers the confidence to leave them on display in any room. This takes the cordless convenience to a new level. Tools that are always charged and always ready for use.

24 Techtronic Industries Co. Ltd. Annual Report 2007 Additionally, a new floor care product development process was The Hoover re-launch will also be accompanied by an introduced, enabling the division to leverage the Group’s world aggressive, 360º advertising and promotion program. Further wide R&D platform. These initiatives reflect the Group’s product line extensions are also scheduled from Dirt Devil. commitment to accelerated speed-to-market, increased end-user research, and the application of innovation potential In Europe, the planned expansion of regional sales teams and across all our floor care brands and product categories. of the Vax brand will be supported by the introduction of commercial range Vax branded products to target the Outlook commercial cleaning market. We can also expect further sales While Dirt Devil is positioned as the design-conscious brand penetration in Russia and Scandinavia where new distributors with clever innovations that make cleaning fun and easy, the and operations are being established. acquisition of Hoover allows us to occupy the premium cleaning segment. With the progressive introduction of a Worldwide, we will continue to maximize TTI complete new product line-up starting in 2008, group synergies and introduce new Hoover will be positioned as the Cleaning product ranges that leverage the Authority, providing best-in-class technology technologies acquired with Hoover. and a consumer experience based upon high-performance, design excellence, and added value. This will be a multi-platform product line approach, covering cordless lithium ion powered products as well as corded categories.

Vax Dual V Carpet Washer The Vax Dual V steam vacuum cleaner is designed to deep clean on the Hoover WindTunnel Cylonic Vacuum carpeted and hard floor The Hoover WindTunnel + Cyclonic surfaces in your home. bagless HEPA upright vacuum Dual V Nozzle technology, combines Patented WindTunnel and heated cleaning, patented cyclonic technology to provide SpinScrub brushes, and lasting suction power for superior Auto Rinse technology carpet cleaning performance. combine to provide superb floor and carpet cleaning performance.

Techtronic Industries Co. Ltd. Annual Report 2007 25 Exceptional People

Asia North and South America TTI TTI David Butts Trevor Deighton Group Executive Vice President & Executive Vice President, President, Asia Pacific Global Operations

John Mosher Matt DeFeo Vice President, Finance Vice President, Store Coverage, Asia Pacific Campus Recruiting & Training

Clarence Chi Hong Chan Group Controller TTI Floor Care Chris Gurreri Alex Chunn President Vice President, Concept Development John Remmers Dr jur. Matthias Hartz Executive Vice President, Senior Vice President, Corporate Affairs Global Engineering

Dr Thomas James Matt Shene Senior Vice President, Chief Financial Officer Professional Power Tools Operations Marty Gardner Marc Hill Vice President, Sales Senior Vice President, Portable Electric Tools & Accessories TTI Canada Jeffrey Zeiler Craig Baxter Vice President, Engineering, President Professional Power Tools Russ Laird Brian Ellis Vice President, Finance Vice President, Engineering, Consumer Power Tools TTI Power Equipment Mike Farrah Solar Wide Industrial Ltd. President, Power Tools Group Hughes Sanoner Mark Hartman President & Chief Executive Officer Vice President, Marketing, Power Tools Group Australasia Lee Sowell TTI Australia & President, Outdoor Products Group

New Zealand Ken Goodgame Mike Brendle Senior Vice President, Business Managing Director Development, Outdoor Products Group

Grant Edhouse Nate Easter Chief Financial Officer Senior Vice President, Operations, Outdoor Products Group Global Management

Ken Faith Europe, Middle East, Africa & Dr Dirk Biskup Vice President, Finance Indian Subcontinent Vice President, Finance & Accounting Bob Gautsch TTI DreBo Werkzeugfabrik Senior Vice President, Power Tools R&D Alexandre Duarte & New Markets GmbH President Markus Dreps Ken Brazell Managing Director Senior Vice President, Industrial Design & Philippe Buisson Concept Development Chief Financial Officer Royal Appliance International GmbH Jason Morris Alexandre Thorn Ralf Lindner Vice President & General Manager, Managing Director, France & Benelux Power Tools Accessories Managing Director & Robert Vos Chief Executive Officer TTI Latin America Managing Director, Middle East & Africa Rodrigo Villanueva Vax Europe Jorge Duarte President Simon Lawson General Manager, Iberia Managing Director

Milwaukee Tools Tommaso Comboni Steven P. Richman General Manager, Italy President Thomas Jacobsson Sean Dougherty General Manager, Nordic Chief Financial Officer Alistair Roberts David A. Selby Vice President, Marketing & Vice President, Engineering Key Accounts, Homelite

Shane A. Moll Tim Stainton Vice President, Marketing & Vice President, Global Lighting SBU Product Development Walter Eichinger Darrell R. Hendrix Managing Director, Ryobi / Senior Vice President, Sales Homelite Central & East Europe

Tom A. Mastaler Senior Vice President, Operations A & M Electric Tools GmbH Horst Garbrecht Dyann L. Kostello Managing Director, Operations General Counsel Oliver Lerch Scott Griswold Vice President, Product Management Vice President, Marketing & General Manager, Accessories Jason Chiswell Vice President, Marketing & Key Accounts

Board of Directors

Group Executive Directors

Horst Julius Pudwill MSc Chairman Mr Horst Julius Pudwill, aged 63, a founding partner of TTI, has been the joint Chairman and Chief Executive Officer from 1985 until early 2008, following which Mr Pudwill retired as a Chief Executive Officer but remains in office as Chairman of the Group. As Chairman, Mr Pudwill focuses on the strategic planning and development of the Group and continues to have oversight of the operations with the Chief Executive Officer reporting directly to him.

Mr Pudwill holds a Master’s Degree in Engineering and a General Commercial Degree. He has extensive experience in international business.

Dr Roy Chi Ping Chung JP Group Vice Chairman Dr Roy Chi Ping Chung JP, aged 55, is a co-founder of TTI. Dr Chung, previously the Group Managing Director since 1985, has been appointed as the Group Vice Chairman and Executive Director of the Company on April 18, 2007 and he is responsible for the corporate and business management of the Group.

Dr Chung holds a Master of Science Degree in Engineering Business Management from the University of Warwick, United Kingdom. He was awarded an Honorary Doctorate Degree by the University of Newcastle, New South Wales, Australia in 2006. He was further awarded an Honorary Doctor of Business Administration by the Hong Kong Polytechnic University in 2007. He was also appointed as Justice of Peace by the Hong Kong SAR Government effective on July 1, 2005 and won the Hong Kong Young Industrialists Award in 1997.

Dr Chung is an active member of many Government commissions. He is currently the Vice-Chairman of the Federation of Hong Kong Industries and the Chairman of Electronics/Electrical Appliances Industry Advisory Committee of Hong Kong Trade Development Council. He is the Council member of University of Warwick, United Kingdom. He is also the Chairman of the University Court of the Hong Kong Polytechnic University and Council Member of Vocational Training Council. Dr Chung, is also an Independent Non-executive Director of Kin Yat Holdings Ltd.

28 Techtronic Industries Co. Ltd. Annual Report 2007 Joseph Galli Jr BSBA, MBA Chief Executive Officer Mr Joseph Galli, Jr, aged 50, joined the Group in 2006 as the Chief Executive Officer of Techtronic Appliances and was appointed as Chief Executive Officer and Executive Director of TTI effective February 1, 2008. He is responsible for integrating acquisitions in North America and Europe, and enhancing the global sales potential of the Group’s strong brand portfolio. He is also responsible for leading the management team in the Group’s daily operation.

Mr Galli joined Black & Decker in 1980 where he worked for over 19 years and held various high level management positions, rising to the position of president of its world wide power tools and accessory division. During his tenure at Black & Decker, he was responsible for the highly successful launch of the “DeWalt®” Brand heavy duty power tools in 1992. After leaving Black & Decker, Mr Galli joined Amazon.com where he was President and Chief Operating Officer from 1999 to 2000. From 2001 to 2005, he was a Director and Chief Executive Officer of Newell Rubbermaid Inc.

Mr Galli graduated from the University of North Carolina in 1980 with a Bachelor of Science in Business Administration. In 1987, he obtained an MBA from Loyola College in Baltimore, Maryland.

Patrick Kin Wah Chan FCCA, FCPA, APVC Operations Director Mr Patrick Kin Wah Chan, aged 48, joined the Group in 1988 and was appointed as Executive Director in 1990. He is now in charge of the manufacturing operations of the Group.

Mr Chan is a fellow member of The Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants, an associate of The Professional Validation Council of Hong Kong Industries, Product Innovation Director of the Hong Kong Electrical Appliances Manufacturers Association.

Frank Chi Chung Chan ACA, FCCA, FCPA, CPA (Practising) Group Chief Financial Officer Mr Frank Chi Chung Chan, aged 54, joined the Group in 1991 and was appointed as Executive Director in 1992. He is now responsible for corporate affairs and financial management of the Group.

Mr Chan is a fellow member of The Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants, a member of The Institute of Chartered Accountants in England & Wales, an associate of the Taxation Institute of Hong Kong and qualified to practise as a Certified Public Accountant in Hong Kong.

He is currently an Independent Non-executive Director of Gold Peak Industries (Holdings) Limited, and an Independent Director of Tsit Wing International Holdings Limited, companies listed on the stock exchanges of Hong Kong and Singapore respectively.

Techtronic Industries Co. Ltd. Annual Report 2007 29 Board of Directors

Stephan Horst Pudwill President of Strategic Planning Mr Stephan Horst Pudwill, aged 31, joined the Group in 2004 and was appointed as Executive Director in 2006. He is mainly responsible for managing, improving, and monitoring internal operations and identifying synergistic business opportunities within the Group.

Prior to joining the Group, Mr Pudwill held managerial positions at Daimler Chrysler AG that included product marketing and strategic planning for the Mercedes-Benz car group.

Mr Pudwill holds a Bachelor of Arts Degree from the University of Bristish Columbia and is Mr Horst Julius Pudwill’s son.

Non-executive Director

Vincent Ting Kau Cheung Mr Cheung, aged 66, was appointed as a Director in 1991. He is a Non-executive Director of Gold Peak Industries (Holdings) Limited, listed on The Stock Exchange of Hong Kong Limited.

Mr Cheung is a graduate in law from University College, London and has been a practising solicitor since 1970. He is qualified to practise law in Hong Kong and the UK and he is now a Consultant of Vincent T.K. Cheung, Yap & Co.

Independent Non-executive Director

Christopher Patrick Langley OBE Mr Christopher Patrick Langley, aged 63, was appointed as an Independent Non-executive Director in 2001. He was formerly an Executive Director of The Hongkong and Shanghai Banking Corporation Ltd. Mr Langley holds directorships in a number of publicly-listed companies and maintains close ties with the business community in Hong Kong.

30 Techtronic Industries Co. Ltd. Annual Report 2007 Joel Arthur Schleicher CPA, BSB Mr. Joel Arthur Schleicher, aged 56, was appointed as an Independent Non-executive Director in 1998. He has 28 years of management experience in the manufacturing and technology/telecom services sectors.

Mr. Schleicher is the Founder, Chairman and CEO of Presidio, Inc., one of the largest implementers of advanced IT infrastructure solutions in the United States. Since 1989, he has worked with private equity firms as a consultant, advisor, board member and held portfolio management roles including as Chairman and CEO for Interpath Communications, Inc, CEO of Expanets, Inc. and President and COO for Nextel Communications, Inc. He currently, or in the past, has served on the board of directors of various North American domestic and international companies.

Manfred Kuhlmann Mr Manfred Kuhlmann, aged 63, was appointed as an Independent Non-executive Director in 2004. He was General Manager of Dresdner Bank AG Hong Kong Branch between 1994 and 1998 and General Manager of Dresdner Bank AG Dubai before he retired in August 2004. Mr Kuhlmann is a graduate of the Banking Academy, Hamburg and has extensive experience in the finance and banking industry. He joined a European based private equity/alternative investment firm as a partner in 2005. Also since 2005 he serves as “Hamburg Ambassador” in the UAE, to support the economic ties between Hamburg, Germany and the UAE.

Peter David Sullivan BS Mr Peter David Sullivan, aged 60, was appointed as Independent Non-executive Director effective February 1, 2008. He was an Executive Director and Chief Executive Officer of Standard Chartered Bank (Hong Kong) Limited. Mr Sullivan held governance responsibility for franchises of the Standard Chartered Group in Japan, Australia, the Philippines and Bohai Bank in Tianjin, China. He also held a number of other major appointments, including as the Chairman of the Hong Kong Association of Banks and the British Chamber of Commerce.

Mr Sullivan holds a Bachelor of Science Degree from the University of New South Wales.

Techtronic Industries Co. Ltd. Annual Report 2007 31 Operational Excellence

TTI Industrial Manufacturing and Innovation Campus – Dongguan, Guangdong Province, China Asia Innovation Centre Management’s Discussion and Analysis

Financial Results

Result Analysis The Group’s turnover for the year amounted to HK$24.8 billion, an increase of 13.53% as compared to the HK$21.8 billion reported in 2006. Proﬁ t attributable to equity holders of the parent amounted to HK$125.26 million, as compared to HK$1.1 billion reported in 2006. Basic earnings per share for the year was at HK8.41 cents as compared to HK73.18 cents in 2006. The HK$743.02 million restructuring and transition charges, together with negative contributions from the newly acquired operations, were major factors for the decrease in both proﬁ ts and earnings per share.

EBITDA, before restructuring and transition charges, amounted to HK$2.0 billion, decreased by 6.48% as compared to HK$2.1 billion reported in 2006.

Following the Hoover acquisition, the Group’s own brand business accounted for 85.90% of total turnover (2006: 80.24%), reinforcing the Group’s strategy to continue to expand and capitalize on its strong brand portfolio. North America accounted for 73.07% (2006 : 73.69%) of the Group’s revenue, after consolidating Hoover. This demonstrates the very healthy growth in markets beyond North America which grew by over 16% year on year.

Gross Margin Gross margin remained comparable to that of last year despite raw material cost increases and the RMB appreciation as a result of favorable product mix and new products being launched during the year together with an effective cost containment program within the Group.

Operating Expenses Total operating expenses increased by 28.66% to HK$6.9 billion (2006 : HK$5.4 billion), representing 27.90% of turnover (2006 : 24.62%). The increase was due to the less efﬁ cient operating costs of Hoover being consolidated in 2007.

Design and development expenses increased by 24.94% to HK$535.13 million, representing 2.16% turnover (2006: 1.96%). The Group will continue to invest in design and development not only to maintain sales growth momentum but also further enhance margin. This been best demonstrated by the fact that despite manufacturing costs been increasing, gross margin of the Group continues to maintain and improve.

As discussed in the interim report, included in the other income is settlement for disputed legal matters. The settlement agreement contains non-disclosure terms concerning the nature of dispute, the parties to the dispute and other terms of agreement.

Net interest expenses for the year amounted to HK$362.12 million as compared to HK$300.23 million reported in 2006, an increase of 20.61%. The increase was due to higher cost of funds during the year, additional working capital required for the Hoover operation and to ﬁ nance the restructuring and transition costs under the Strategic Repositioning Plan. Interest coverage, expressed as a multiple of EBITDA before restructuring and transition was at 4.48 times (2006 : 5.59 times).

The effective tax rate, being tax charged for the year to before tax profi ts was at 23.05%. However, certain tax effi ciencies arising from the restructuring and transition charges did not materialize in 2007 and have been deferred to 2008. The Group will leverage this and its global operations to further improve on overall tax effi ciencies.

34 Techtronic Industries Co. Ltd. Annual Report 2007 Liquidity and Financial Resources

Shareholders’ Funds Total shareholders’ funds amounted to HK$6.9 billion, as compared to HK$7.0 billion reported last year as a result of share repurchased during the year and redemption of Convertible bonds, and after having accounted for the HK$743.02 million restructuring and transition costs.

Financial Position The Group’s net gearing, expressed as a percentage of total net borrowing to equity attributable to equity holders, was at 104.32% as compared to 74.14% as reported last year. The increase is mainly due to the negative contributions from the newly acquired operations during the year together with additional working capital required for the Strategic Repositioning Plan (SRP). The Group remains conﬁ dent that the gearing will improve after the successful implementation of the SRP, margin improvements from the acquired business, together with very focused and stringent working capital management.

Bank Borrowings On June 12, 2007, the Group received notice that of the US$140 million Zero Coupon Convertible Bonds in issue, US$127.85 million, representing approximately 91% of the total bond outstanding, exercised their Put Option that the bonds be redeemed on July 8, 2007. The Put amount was fully settled on the due date.

Following the redemption of the convertible bonds, long term debts accounted for 41.27% of the total debt as compared to 62.54% in 2006.

The Group’s major borrowings continued to be in US Dollars and HK Dollars. Other than the ﬁ xed rate notes and the unredeemed portion of the Zero Coupon Convertible Bonds, all borrowings are either LIBOR or Hong Kong best lending rates based. There is a natural hedge mechanism in place as the Group’s major revenues are in US Dollars and currency exposure therefore is low. Currency, interest rate exposures together with cash management functions are all being closely monitored and managed by the Group’s treasury team.

Working Capital Total inventory increased from HK$4.0 billion in 2006 to HK$5.9 billion in 2007 with the consolidation of Hoover’s operation and additional inventory built during the year for the strategic repositioning plan. The number of days inventory increased by 6 days from 67 days to 73 days. The Group will focus in reducing the inventory level and improve inventory turns.

Trade receivable turnover days were at 56 days as compared to 54 days as reported last year. The Group is comfortable with the quality of the receivables and will continue to exercise due care in managing the credit exposure.

Trade payable days extended by 3 days from 56 days reported in 2006 to 59 days in 2007.

Capital Expenditure Total capital expenditure for the year amounted to HK$859.71 million with HK$265.80 million related to the China factory expansion and HK$130.22 million from the newly acquired Hoover business.

Capital Commitments and Contingent Liabilities As at December 31, 2007, total capital commitments amounted to HK$391.35 million (2006: HK$620.09 million) and there were no material contingent liabilities or off balance sheet obligations.

Charges None of the Group’s assets are charged or subject to encumbrance.

Techtronic Industries Co. Ltd. Annual Report 2007 35 Management’s Discussion and Analysis

Hoover Acquisition On December 7, 2006 the Directors announced that the Company on December 6, 2006 (US Eastern Standard Time) entered into the conditional Purchase and Sale Agreement (“PSA”) to purchase the Hoover Floor Care business from certain subsidiaries of Whirlpool Corporation. The total consideration for the purchase of the Hoover assets and two operating subsidiaries consists of the payment of US$107 million (approximately HK$831 million) in cash to Maytag Corporation (on behalf of itself and the other sellers).

All of the conditions set out in the PSA have been fulﬁ lled as per our announcement dated January 30, 2007 and the transaction was completed on January 31, 2007. It was fully settled at the closing of the transaction by internal resources.

We have ﬁ nalized the evaluation of the acquired assets and liabilities according to HKFRS 3. Accounting for Business Combinations. For that purpose we retained appraisers and actuaries who worked on the valuation of the acquired property, plant and equipment, intangibles, and long-term post retirement beneﬁ ts.

Major Customers and Suppliers For the year ended December 31, 2007

(i) the Group’s largest customer and ﬁ ve largest customers accounted for approximately 33.22% and 54.31% respectively of the Group’s total turnover; and

(ii) the Group’s largest supplier and ﬁ ve largest suppliers accounted for approximately 3.36% and 12.44% respectively of the Group’s total purchases (not including purchases of items which are of a capital nature).

According to the knowledge of the Directors, none of the Directors, their associates or any shareholders who owned more than 5% of TTI’s share capital had any interest in the ﬁ ve largest customers or suppliers of the Group. Human Resources The Group employed a total of 23,685 employees (2006: 20,679 employees) in Hong Kong and overseas. Total staff costs for the period under review amounted to HK$3,186.75 million as compared to HK$2,456.31 million last year.

The Group regards human capital as vital for the Group’s continuous growth and proﬁ tability and remains committed to improve the quality, competence and skills of all employees. It provides job related training and leadership development programs throughout the organization. The Group continues to offer competitive remuneration packages, discretionary share options and bonuses to eligible staff, based on the performance of the Group and the individual employee. Strategic Repositioning Plan The Board of Directors approved in 2007 a series of strategic repositioning initiatives designed to signiﬁ cantly boost our future performance by exploiting the synergies and growth opportunities offered by our acquisitions and business scale. The plan includes:

• Re-deployment of our global manufacturing and product development capabilities; • Reorganization into new product and regional business units for more efﬁ cient management of brands, products, and investments; and • Expanding the marketing of our brands and products in markets where they are under-represented.

36 Techtronic Industries Co. Ltd. Annual Report 2007 Costs and Savings The total estimated non-recurring cost of the Strategic Repositioning Plan over three years is about US$150 million, including about US$55 million of non-cash and US$95 million of cash restructuring charges, and about US$22 million of related transition expenses. Once the redeployment and reorganisation plans have been fully implemented, the anticipated annualised pre-tax savings should be over HK$550 million (US$70 million).

For full year 2007, the initiatives generated a pre-tax restructuring charge of HK$668.48 million (US$86 million), including HK$400.70 million (US$51 million) for Hoover, and HK$267.78 million (US$35 million) for other restructuring. The cash portion of these charges was HK$416.18 million, and the non-cash portion was HK$252.30 million. In addition to the restructuring charges in 2007, we incurred related pre-tax transition expenses of HK$74.54 million (US$9 million) that do not qualify as exit costs under HKFRS, including HK$34.19 million (US$4 million) for Hoover and HK$40.35 million (US$5 million) for other.

We estimate the future restructuring charges to be approximately HK$500 million (US$64 million), about 65% cash and 35% non-cash, all to be recognised in 2008. In addition to the further restructuring charges in 2008, we expect to incur related transition expenses of approximately HK$100 million (US$13 million) that do not qualify as exit costs under HKFRS.

Repositioning Status • Redeployment of the Group’s global manufacturing and product development capabilities is on schedule. • Reorganization of the Group into new product and regional business units is nearing completion. • Initiatives to expand marketing of our brands and products in under-represented markets were launched in several markets in 2007, and additional markets will be targeted in 2008.

Floor Care Division The Hoover integration is virtually complete, and the Hoover operation is on track to deliver positive operating results for 2008 and beyond.

• The production in North Canton, Ohio has been integrated into TTI’s Texas and Mexico facilities and current China facilities. • A global R&D center was constructed in Ohio to host all US R&D activities for Hoover and Royal, and to lead R&D globally. This investment will support a more robust new product design and development pipeline, ensuring the Group is able to leverage globally its market leading technology capability. • Hoover’s prior distribution activities have been migrated into Royal’s existing facilities, yielding signiﬁ cant cost savings, improved shipping and handling productivity, and better service levels for customers.

Power Equipment Division The move of Milwaukee production to China will yield signiﬁ cant cost savings in 2008 and beyond.

• The production transfer of Milwaukee cordless products to the Group’s China facilities is completed, and the transfer of corded products is on target; • TTI has announced the closure of 2 US facilities by the end of 2008. • The construction of a new facility and test labs in China, dedicated to the manufacturing of professional tools, is almost completed and is expected to be in operation by the second half of 2008.

Techtronic Industries Co. Ltd. Annual Report 2007 37 Management’s Discussion and Analysis

TTI is streamlining European operations to optimise the production of higher complexity products to meet the needs of the European and US markets. The majority of the European corded products have already been transferred to China.

Regional Business Units and Expansion into Under-Represented Markets New regional business units established during 2007 included Europe and the Middle East, Canada, and Australasia. The leaders of these new regional units are responsible for streamlining existing operations, developing strategic partnerships, and expanding into under-represented markets. Under-represented markets given increased attention in 2007 included Canada, Eastern Europe, and the Middle East. Markets slated for increased attention in 2008 include certain countries in Western Europe, Latin America, and Asia including China. Purchase, Sale or Redemption of Shares A total of 4,358,500 ordinary shares of HK$0.10 each were repurchased by the Company during the year at prices ranging from HK$6.48 to HK$9.25 per share. The aggregate amount paid by the Company for such repurchases amounting to HK$35,175,000, was charged to the retained earnings.

The repurchased shares were cancelled and the issued share capital and the capital redemption reserve of the Company was reduced and increased respectively by the par value thereof.

The repurchase of the Company’s shares during the year were effected by the directors pursuant to the mandate from shareholders received at the previous annual general meeting, with a view to beneﬁ ting shareholders as a whole by enhancing the net asset value per share and earnings per share of the Company.

Except as disclosed above, neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities during the year. Review of Financial Information The Audit Committee has reviewed with senior management of the Group and Messrs Deloitte Touche Tohmatsu the accounting principles and practices adopted by the Company and has discussed internal controls and fi nancial reporting matters, including the review of the Group’s consolidated fi nancial statements for the year ended December 31, 2007. The Board acknowledges its responsibility for the preparation of the accounts of the Group. Dividend The Directors have recommended a fi nal dividend of HK1.50 cents per share for the year ended December 31, 2007 (2006: HK12.60 cents) payable to the Company’s shareholders whose names appear on the register of members of the Company on May 30, 2008. Subject to the approval of the shareholders at the forthcoming annual general meeting of the Company, the proposed fi nal dividend is expected to be paid on or about July 31, 2008. This payment, together with the interim dividend of HK6.50 cents per share (2006: HK6.50 cents) paid on September 28, 2007, makes a total payment of HK8.00 cents per share for 2007 (2006: HK19.10 cents). Closure of Register of Members The register of members of the Company will be closed from May 28, 2008 to May 30, 2008, both days inclusive. In order to qualify for the fi nal dividend, all transfers accompanied by the relevant share certifi cates must be lodged with the Company’s share registrars, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong not later than 4:00 p.m. on May 27, 2008.

38 Techtronic Industries Co. Ltd. Annual Report 2007 Corporate Governance Report

The Company is committed to maintaining high standards of corporate governance with a view to assuring the conduct of management of the Company as well as protecting the interests of all shareholders. The corporate governance principles of the Company emphasis a quality Board for leadership and control of the Company, effective internal controls, transparency and accountability to all shareholders.

Compliance with Code of Governance Practices The Company conﬁ rms that it has complied with all the code provisions of the Code on Corporate Governance Practices (the “CG Code”) set out in Appendix 14 of the Listing Rules throughout the year ended December 31, 2007, save that:

1. The roles of Chairman and the Chief Executive Offi cer of the Company were performed by Mr Horst Julius Pudwill until February 1, 2008. Mr Joseph Galli Jr was appointed Chief Executive Offi cer and Executive Director of the Company effective February 1, 2008. Mr Pudwill continues in his role as Chairman and Executive Director. This is to allow Mr Pudwill to focus on the strategic planning and development of the Group. These changes are made in respond to the ongoing expansion and development of the Group and to comply with the requirement of the recommended code provision A.2.1 of the CG Code that the roles of Chairman and Chief Executive Offi cer should be separate and not be performed by the same individual.

2. None of the Directors are appointed for a speciﬁ c term since they are subject to retirement by rotation and re-election in accordance with the Articles of Association of the Company. Under Article 103 of the Articles of Association of the Company, one third of the Board must retire by rotation at each annual general meeting of the Company and, if eligible, offer themselves for re-election.

Board of Directors Roles and Responsibilities The board of directors (the “Board”) assumes responsibility for leadership and management of the Group’s affairs and concentrates on matters affecting the Group’s overall strategic policies, ﬁ nances, shareholder interests and corporate governance. Principle responsibilities of the Board include, but are not limited to, the following:

• decide or consider matters covering major acquisitions and disposals, appointment of Directors and external auditors, and other signiﬁ cant operational matters.

• monitor and control the Group’s operation and ﬁ nancial performance through the determination of the annual budget and continuous review of performance results.

Written procedures have been formally adopted to govern the delegation of daily management responsibilities to the senior management of the Group and the reservation to the Board of speciﬁ cally identiﬁ ed matters. The procedures are reviewed by the Board periodically.

Each Director has a duty to act in good faith and in the best interests of the Company. The Directors, collectively and individually, are aware of their responsibilities and accountability to shareholders, for the manner in which the affairs of the Company are managed and operated.

Techtronic Industries Co. Ltd. Annual Report 2007 39 Corporate Governance Report

Board Composition Following the appointment of two new Directors on February 1, 2008, the Board consists of six Group Executive Directors, one Non-executive Director and four Independent Non-executive Directors. The composition of the Board of the Company is as follows:

Group Executive Director Mr Horst Julius Pudwill (Chairman) Dr Roy Chi Ping Chung JP (Vice Chairman) Mr Joseph Galli Jr (Chief Executive Ofﬁ cer) — Appointed on February 1, 2008 Mr Kin Wah Chan (Operations Director) Mr Chi Chung Chan (Group Chief Financial Ofﬁ cer) Mr Stephan Horst Pudwill (President of Strategic Planning)

Non-executive Director Mr Vincent Ting Kau Cheung

Independent Non-executive Director Mr Christopher Patrick Langley OBE Mr Joel Arthur Schleicher Mr Manfred Kuhlmann Mr Peter David Sullivan — Appointed on February 1, 2008

Effective from February 1, 2008, the roles of Chairman and Chief Executive Officer have been separated.

The role of Chairman comprises, but is not limited to, the following:

a) To ensure that all Directors are properly briefed on issues arising at Board meetings.

b) To ensure that Directors receive adequate information, which must be complete and reliable, in a timely manner.

c) To ensure that good corporate governance practices and procedures are established.

d) To encourage all Directors to make a full and active contribution to the Board’s affairs and to take the lead to ensure that the Board acts in the best interests of the Company.

e) To ensure that appropriate steps are taken to provide effective communication with shareholders and that views of shareholders are communicated to the Board as a whole.

The role of Chief Executive Ofﬁ cer comprises, but is not limited to, the following:

a) To lead the management team in the Group’s daily operation.

b) To assist the Group in integrating acquisitions in North America and Europe, and to enhance the global sales potential of our strong brand portfolio.

40 Techtronic Industries Co. Ltd. Annual Report 2007 All Directors are subject to retirement by rotation at least once every three years pursuant to the Company’s Articles of Association and the Listing Rules. Also, any Directors appointed to ﬁ ll a casual vacancy would be subject to election by shareholders at the ﬁ rst general meeting after their appointment. The biographical details and relevant relationships are set out on pages 28 to 31 of this annual report.

Every newly appointed Director is provided with orientation detailing the duties and responsibilities of directors under the Listing Rules, the Company’s Articles of Association, related ordinances and relevant regulatory requirements of Hong Kong. Presentations are, as necessary, given by senior executives of the Company and external professionals. Training and updates are offered to Directors as necessary to ensure that Directors are aware of the latest changes in the commercial and regulatory environment in which the Company conducts its business.

Every Director is aware that, before accepting appointment as a Director, he must be able to give sufﬁ cient time and attention to the affairs of the Company.

The Company has directors’ and ofﬁ cers’ liability insurance coverage in place to protect Directors from loss as a result of legal proceeding against the Company.

The Company has received an annual conﬁ rmation of independence from each of the Independent Non- executive Directors. The Company is of the view that all the Independent Non-executive Directors meet the guidelines for assessing independence set out in Rule 3.13 of the Listing Rules and still considers them to be independent.

Compliance with the Model Code for Securities Transactions The Board has adopted the provisions of the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Listing Rules (the “Model Code”). The Company has made speciﬁ c enquiry of the Directors regarding any non-compliance with the Model Code during the year ended December 31, 2007 and all of them conﬁ rmed that they have fully complied with the required standards as set out in the Model Code.

The Board has also adopted another code of conduct on terms no less onerous than the Model Code that applies to securities transactions of all relevant employees who may be in possession of unpublished price sensitive information in relation to the Company (the “Code for Securities Transactions by Relevant Employees”).

Both the Model Code and the Code for Securities Transactions by Relevant Employees have been published on the Company’s website (www.ttigroup.com).

Board Meetings The Board is committed to at least four scheduled meetings in a year and will meet more frequently as and when required. All members of the Board are given complete and reliable information in relation to the affairs of the Group, and receive the support from and access to the Company Secretary of the Company in respect of all meetings of the Board. Each Director is afforded access, on his request, to senior management of the Group and to independent professional advice in performing their duties at the Company’s expense. All Directors receive brieﬁ ngs and professional development training as necessary to ensure a proper understanding of the business of the Group and their responsibilities under statute and at common law.

Techtronic Industries Co. Ltd. Annual Report 2007 41 Corporate Governance Report

The Board held six meetings during 2007. The summary at the end of this report sets out the attendance record of each Director. Proposed Board meeting dates for 2008 were set in the last Board meeting held in 2007 to facilitate maximum attendance of Directors. The meeting agenda is set by the Chairman in consultation with members of the Board.

Minutes of the Board/committee meetings with sufﬁ cient details of matters and concerns discussed are kept in safe custody by the Company Secretary of the Company, are sent to the Directors for record and are open for inspection by the Directors.

Board Committees The Board has delegated various responsibilities to an Audit Committee, a Nomination Committee and a Remuneration Committee. The majority of the members of each committee, other than Nomination Committee, are Independent Non-executive Directors. This ensures the independence of views and opinions expressed by the Directors at the respective committee meetings. The committees report back to the Board on their activities and decisions.

Audit Committee The main role and function of the Audit Committee is to ensure the effectiveness of the internal control system and compliance with the Group’s obligations under the Listing Rules and other applicable laws and regulations, and to oversee the integrity of the ﬁ nancial statements of the Company.

The Audit Committee is comprised of three Independent Non-executive Directors (being Mr Joel Arthur Schleicher, Mr Christopher Patrick Langley OBE and Mr Manfred Kuhlmann) and is chaired by Mr Joel Arthur Schleicher. Each member of the Audit Committee has professional, ﬁ nancial, or accounting qualiﬁ cations as required under the Listing Rules.

The Audit Committee held fi ve meetings during 2007, with 100% attendance rate, to review with the Group Chief Financial Offi cer, the Head of Internal Audit, other senior management and the external auditors, the Group’s signifi cant fi nancial matters, internal controls, the Company’s accounting principles and practices, risk management, fi nancial reporting matters (including the interim and annual results for the Board’s approval) and fi ndings of internal and external auditors.

The Audit Committee has scheduled ﬁ ve regular meetings for 2008.

Nomination Committee The main role and function of the Nomination Committee is to ensure a fair and transparent process of Board appointments, and in particular to assist the Board to identify suitable candidates and make recommendations for consideration of the Board and shareholders.

The Nomination Committee is comprised of four members, and is chaired by Mr Horst Julius Pudwill (Chairman), the other members being Mr Vincent Ting Kau Cheung, Mr Christopher Patrick Langley OBE and Mr Manfred Kuhlmann.

The Nomination Committee held two meetings during 2007 with 100% attendance rate. Matters considered by the Nomination Committee during 2007 included:

• review of the independence of Independent Non-executive Directors

• review of the structure, size and composition of the Board

42 Techtronic Industries Co. Ltd. Annual Report 2007 • recommendation to the Board on the appointment of Dr Roy Chi Ping Chung as Vice Chairman of the Company

• recommendation to the Board about the re-election of retiring Directors at the annual general meeting

• review the updated policy for the selection and nomination of directors, which was adopted by the Board on November 26, 2007

• review the updated terms of reference of the Nomination Committee

The Nomination Committee has scheduled two regular meetings for 2008.

Remuneration Committee The main role and function of the Remuneration Committee is to assist the Board in developing and administering a fair and transparent procedure for setting policy on the overall human resources strategy of the Group and the remuneration of Directors and senior management of the Group, and for determining their remuneration packages, on the basis of their merit, qualiﬁ cations, and competence, and having regard to the Company’s operating results, individual performance, and comparable market statistics.

The Remuneration Committee is comprised of four members, and is chaired by Mr Vincent Ting Kau Cheung, the other members being Mr Christopher Patrick Langley OBE, Mr Manfred Kuhlmann and Mr Joel Arthur Schleicher (appointed a member on April 17, 2007).

The Remuneration Committee held ﬁ ve meetings during 2007 with 100% attendance rate. The Remuneration Committee, among other things, considered the following matters during 2007:

• review of the remuneration policy of the Directors and senior management of the Group

• review of the updated terms of reference of the Remuneration Committee

• review of the new share option scheme, which was adopted at the annual general meeting held on May 29, 2007

• review of the Share Award Scheme, which was adopted by the Board on 9 January 2008

The Remuneration Committee has scheduled three regular meetings for 2008.

Accountability and Audit The Board acknowledges its responsibility for the preparation of the accounts of the Company.

Internal Control In respect of the year ended December 31, 2007, the Board has reviewed the internal control systems of the Group. The Board is responsible for approving and reviewing key internal control policies including delegated authorities, policy on market disclosure and investor relations, non-audit services and treasury management policy. An internal control system is designed to provide reasonable, but not absolute assurance that material misstatement or loss can be avoided, and to manage and minimise risks of failure in operational systems.

Techtronic Industries Co. Ltd. Annual Report 2007 43 Corporate Governance Report

The Board, and in particular the Audit Committee, conducts a continuous review of the effectiveness of the Group’s system of internal control. The “Internal Control — Integrated Framework” developed by the Committee of Sponsoring Organisations of the Treadway Commission (“COSO”) is used as a framework for the continuous review. In 2007, the review included:

• The organisation structure and delegated authorities

• The performance and adequacy of accounting and information systems

• The risk management process including formal risk assessment at the enterprise level

• The risk management functions and their performance indicators including discussions with senior management responsible for day-to-day management of signiﬁ cant risks

• The effectiveness of the Company’s procedures relating to statutory and regulatory compliance

• The scope and quality of management’s ongoing monitoring of risks and system of internal control

The Board and senior management continuously update, develop and improve the internal control system of the Group.

External Auditors

The external auditors of the Group are Deloitte Touche Tohmatsu, and in 2007, Deloitte Touche Tohmatsu provided the following audit and non-audit services to the Group:

Nature of Services Amount (HK$million)

External Audit Services 19.8 Taxation Consultancy Services 1.2 Other Consultancy Services 0.2

Deloitte Touche Tohmatsu is also the tax advisers of the Hong Kong companies of the Group. The other consultancy services provided by Deloitte Touche Tohmatsu comprised professional services conducted under the terms of speciﬁ ed engagements.

The nature and ratio of annual fees to external auditors for audit services and non-audit services are subject to scrutiny by the Audit Committee. All non-audit services from external auditors are regulated by a Policy on Non-Audit Services published on the Company’s website (www.ttigroup.com).

In addition, in order to enhance independent reporting by external auditors of the Group, the Independent Non-executive Directors and the external auditors of the Group meet without the presence of the management of the Group every year.

44 Techtronic Industries Co. Ltd. Annual Report 2007 Investor Relations and Shareholder Communications The Company understands the importance of maintaining effective communication with its shareholders and investors and is committed to provide timely, efﬁ cient and accurate information to them. A Policy on Market Disclosure, Investor Relations, and Shareholder Communication, published on the Company’s website (www.ttigroup.com), ensures that the Company complies with its disclosure obligations under the Listing Rules and other applicable laws and regulations, and that all shareholders and potential investors have an equal opportunity to receive and obtain externally available information issued by the Company.

The Company continues to maintain an effective communication pathway by holding regular meetings with institutional shareholders and analysts. All of the Company’s circulars, announcements, notices and results of general meetings, annual and interim reports, and webcasts of results presentations at press conference can be easily accessed from the Company’s website (www.ttigroup.com).

In addition, in order to enhance minority shareholders’ rights, the Company has adopted the practice of voting by poll for all resolutions put forward at its annual general meetings and special general meetings. The Company discloses in its circulars to shareholders of convening a general meeting, the procedures for and the rights of shareholders to demand a poll in compliance with Rule 13.39(4) of the Listing Rules.

A summary of attendance of Board and Committee meetings in 2007 are detailed in the following table:

Meetings attended/Held in 2007

Nomination Remuneration Board Audit Committee Committee Committee

Number of meetings held during the year6525

Group Executive Directors Mr Horst Julius Pudwill 6/6 2/2 Dr Roy Chi Ping Chung JP 6/6 Mr Kin Wah Chan 6/6 Mr Chi Chung Chan 6/6 Mr Stephan Horst Pudwill 6/6

Non-executive Director Mr Vincent Kau Ting Cheung 6/6 2/2 5/5

Independent Non-executive Directors Mr Joel Arthur Schleicher 6/6 5/5 *3/3

Mr Christopher Patrick Langley OBE 6/6 5/5 2/2 5/5 Mr Manfred Kuhlmann 6/6 5/5 2/2 5/5

Dates of meetings January 22, 2007 January 22, 2007 April 17, 2007 January 22, 2007 April 18, 2007 April 16, 2007 November 26, 2007 March 6, 2007 May 14, 2007 May 28, 2007 April 17, 2007 May 28, 2007 August 20, 2007 May 29, 2007 August 21, 2007 November 26, 2007 November 26, 2007 November 26, 2007

* Mr Joel Arthur Schleicher was appointed as a member of Remuneration Committee on April 17, 2007

Techtronic Industries Co. Ltd. Annual Report 2007 45 Directors’ Report

The directors have pleasure in presenting their annual report and the audited ﬁ nancial statements for the year ended December 31, 2007.

Principal Activities The Company acts as an investment holding company and also manufactures and trades electrical and electronic products.

The principal activities of the principal subsidiaries and associates are set out in Notes 53 and 54 to the ﬁ nancial statements, respectively.

Results and Appropriations The results of the Group for the year ended December 31, 2007 are set out in the consolidated income statement on page 58.

An interim dividend of HK6.50 cents per share amounting to HK$97,865,000 was paid to the shareholders during the year.

The directors now recommend the payment of a ﬁ nal dividend of HK1.50 cents per share to the shareholders on the register of members on May 30, 2008, amounting to approximately HK$22,519,000.

Property, Plant and Equipment The Group continued to expand its business and during the year spent approximately HK$199,939,000 on moulds and tooling and acquired office equipment, furniture and fixtures for approximately HK$125,633,000 and plant and machinery for approximately HK$111,242,000. Details of these and other movements in the property, plant and equipment of the Group and the Company during the year are set out in Note 16 to the ﬁ nancial statements.

Share Capital Details of movements during the year in the share capital of the Company are set out in Note 42 to the consolidated ﬁ nancial statements.

A total of 4,358,500 ordinary shares of HK$0.10 each were repurchased by the Company during the year at prices ranging from HK$6.48 to HK$9.25 per share. The aggregate amount paid by the Company for such repurchases amounting to HK$35,175,000, was charged to the retained earnings.

The repurchased shares were cancelled, the issued share capital and the capital redemption reserve of the Company was reduced and increased respectively by the par value thereof.

46 Techtronic Industries Co. Ltd. Annual Report 2007 Share Capital (continued) Except as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year.

Directors The directors of the Company during the year and up to the date of this report were:

Group Executive Directors: Mr Horst Julius Pudwill, Chairman Dr Roy Chi Ping Chung JP, Vice Chairman Mr Joseph Galli Jr, Chief Executive Ofﬁ cer (appointed on February 1, 2008) Mr Kin Wah Chan Mr Chi Chung Chan Mr Stephan Horst Pudwill

Non-executive Director: Mr Vincent Ting Kau Cheung

Independent Non-executive Directors: Mr Joel Arthur Schleicher Mr Christopher Patrick Langley OBE Mr Manfred Kuhlmann Mr Peter David Sullivan (appointed on February 1, 2008)

In accordance with Article 103 of the Company’s Articles of Association, Messrs. Horst Julius Pudwill, Kin Wah Chan, Vincent Ting Kau Cheung and Joel Arthur Schleicher and in accordance with Article 94 of the Company’s Articles of Association, Messrs. Joseph Galli Jr and Peter David Sullivan, will retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

No director proposed for re-election at the forthcoming Annual General Meeting has a service contract, which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

Terms of Ofﬁ ce of Non-executive Directors and Independent Non-executive Directors The term of ofﬁ ce for each of the Non-executive Directors and Independent Non-executive Directors is the period up to his retirement by rotation in accordance with Article 103 of the Company’s Articles of Association.

Techtronic Industries Co. Ltd. Annual Report 2007 47 Directors’ Report

Directors’ and Chief Executive’s Interests As at December 31, 2007, the interests and short positions of the directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which have been notiﬁ ed to the Company pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such director or chief executive was taken or deemed to have under such provisions of the SFO) or as recorded in the register required to be kept under section 352 of the SFO or otherwise notiﬁ ed to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Listing Rules”) and as adopted by the Company, were as follows:

Interests in Interests in underlying Total shares (other shares interests Approximate than pursuant pursuant in shares/ aggregate Capacity/ to equity to equity underlying percentage of Name of directors Nature of interests derivatives)(1) derivatives(1) shares interests

Mr Horst Julius Pudwill Beneﬁ cial owner 112,024,500 400,000 336,344,294 22.40% Interests of spouse 760,000 — Interests of controlled 223,159,794(2) — corporation

Dr Roy Chi Ping Chung JP Beneﬁ cial owner 126,405,948 960,000 164,576,978 10.96% Interests of spouse 136,000 — Interests of controlled 37,075,030 (3) — corporation

Mr Kin Wah Chan Beneﬁ cial owner — 1,000,000 1,000,000 0.07%

Mr Chi Chung Chan Beneﬁ cial owner — 3,000,000 3,000,000 0.20%

Mr Stephan Horst Pudwill Beneﬁ cial owner 4,054,500 100,000 4,154,500 0.28%

Mr Vincent Ting Kau Cheung Beneﬁ cial owner 1,920,000 — 1,920,000 0.13%

Mr Joel Arthur Schleicher Beneﬁ cial owner 100,000 300,000 460,000 0.03% Interests of spouse — 60,000(1)

Mr Christopher Patrick Langley OBE Beneﬁ cial owner 500,000 200,000 700,000 0.05%

Mr Manfred Kuhlmann Beneﬁ cial owner — 100,000 100,000 0.01%

48 Techtronic Industries Co. Ltd. Annual Report 2007 Directors’ and Chief Executive’s Interests (continued) Notes:

(1) Interests in shares and underlying shares stated above represent long positions of the Company.

The interests of the directors of the Company in the underlying shares pursuant to equity derivatives, which were held as beneﬁ cial owner, represent share options granted to them respectively pursuant to the share option schemes adopted by the Company, details of which are separately disclosed in the section headed “Share Options” below. These share options are physically settled and unlisted.

The interests of the spouse of Mr Joel Arthur Schleicher in the underlying shares pursuant to listed equity derivatives represent an interest in 60,000 underlying shares held in the form of 12,000 American Depositary Receipts, each representing 5 shares of the Company.

(2) These shares were held by the following companies in which Mr Horst Julius Pudwill has a beneﬁ cial interest:

No. of shares

Sunning Inc. 186,084,764 Cordless Industries Company Limited* 37,075,030

223,159,794

(3) These shares were held by Cordless Industries Company Limited* in which Dr Roy Chi Ping Chung JP has a beneﬁ cial interest.

* Cordless Industries Company Limited is owned as to 70% by Mr Horst Julius Pudwill and as to 30% by

Dr Roy Chi Ping Chung JP

Save as disclosed above, none of the directors and the chief executive of the Company was interested or had any short position in any shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) as at December 31, 2007.

Share Options Scheme Adopted on March 28, 2002 (“Scheme C”) Following the termination of Scheme B, a new share option scheme was adopted pursuant to a resolution passed on March 28, 2002 for recognition of the contribution to the development and growth of the Group by the eligible persons. This scheme is expired on March 27, 2007. Under Scheme C, the Board of Directors of the Company may grant share options to the following eligible persons (and their wholly owned companies) of the Company, its subsidiaries and any companies in which the Group holds any equity interest, to subscribe for shares in the Company:

(i) employees; or (ii) Non-executive Directors (including Independent Non-executive Directors); or (iii) suppliers or customers; or (iv) any person or entity that provides research, development or other technological support; or (v) shareholders.

Techtronic Industries Co. Ltd. Annual Report 2007 49 Directors’ Report

Share Options (continued) Scheme Adopted on March 28, 2002 (“Scheme C”) (continued) Share options granted must be taken up within 21 days of the date of grant, upon payment of HK$1.00 in cash by way of consideration for the grant thereof. Share options may be exercised at any time from the date of grant to the ﬁ fth anniversary thereof. The subscription price is set at the highest of: the closing price of the shares on the date of offer of the share option; or the average closing price of shares as stated in the daily quotation sheets issued by the Stock Exchange for the ﬁ ve trading days immediately preceding the date of offer; or the nominal value of shares on the date of offer.

The maximum number of shares in respect of which share options may be granted under Scheme C is not permitted to exceed 30.00% of the issued share capital of the Company from time to time or 10.00% of shares in issue as at the adoption date of Scheme C. No person shall be granted an option which exceeds 1.00% of the shares in issue as at the date of offer in any 12-month period up to the date thereof.

Scheme Adopted on May 29, 2007 (“Scheme D”) Following the termination of Scheme C, a new share option scheme was adopted pursuant to a resolution passed on May 29, 2007 for recognition of the contribution to the development and growth of the Group by the eligible persons. This scheme will expire on May 28, 2017. Under Scheme D, the Board of Directors of the Company may grant share options to the following eligible persons (and their wholly owned companies) of the Company, its subsidiaries and any companies in which the Group holds any equity interest, to subscribe for shares in the Company:

(i) employees; or (ii) Non-executive Directors (including Independent Non-executive Director or ofﬁ cer); or (iii) secondees; or (iv) business partner, agent, consultant; or (v) suppliers or customers; or (vi) any person or entity that provides research, development or other technological support; or (vii) shareholders.

Share options granted must be taken up within 21 days of the date of grant, upon payment of HK$1.00 in cash by way of consideration for the grant thereof. Share options may be exercised at any time from the date of grant to the tenth anniversary thereof. The subscription price is set at the highest of: the closing price of the shares on the date of offer of the share option; or the average closing price of shares as stated in the daily quotation sheets issued by the Stock Exchange for the ﬁ ve trading days immediately preceding the date of offer; or the nominal value of shares on the date of offer.

The maximum number of shares in respect of which share options may be granted under Scheme D is not permitted to exceed 30.00% of the issued share capital of the Company from time to time or 10.00% of shares in issue as at the adoption date of Scheme D. No person shall be granted an option which exceeds 1.00% of the shares in issue as at the date of offer in any 12-month period up to the date thereof.

50 Techtronic Industries Co. Ltd. Annual Report 2007 Share Options (continued) The following table discloses movements in the Company’s share options during the year:

Date of Share share option Outstanding Granted Exercised Lapsed Outstanding options scheme at beginning during the during the during the at end of Subscription Share option holders granted category of the year year year year the year price Exercise period HK$

Directors Mr Horst Julius Pudwill 28.6.2002 Scheme C 25,728,000 — 25,728,000 — — 3.600 28.6.20002 – 27.6.2007 19.9.2003 Scheme C 560,000 — 560,000 — — 8.685 19.9.2003 – 18.9.2008 25.2.2004 Scheme C400,000 — — — 400,000 12.170 25.2.2004 – 24.2.2009

Dr Roy Chi Ping Chung JP 28.6.2002 Scheme C 12,864,000 — 12,864,000 — — 3.600 28.6.2002 – 27.6.2007 19.9.2003 Scheme C560,000 — — — 560,000 8.685 19.9.2003 – 18.9.2008 25.2.2004 Scheme C400,000 — — — 400,000 12.170 25.2.2004 – 24.2.2009

Mr Kin Wah Chan 1.3.2004 Scheme C 1,000,000 — — — 1,000,000 12.525 1.3.2004 – 28.2.2009

Mr Chi Chung Chan 17.7.2003 Scheme C 1,000,000 — — — 1,000,000 7.625 17.7.2003 – 16.7.2008 19.9.2003 Scheme C500,000 — — — 500,000 8.685 19.9.2003 – 18.9.2008 25.2.2004 Scheme C1,000,000 — — — 1,000,000 12.170 25.2.2004 – 24.2.2009 1.3.2004 Scheme C500,000 — — — 500,000 12.525 1.3.2004 – 28.2.2009

Mr Stephan Horst Pudwill 1.3.2004 Scheme C 100,000 — — — 100,000 12.525 1.3.2004 – 28.2.2009

Mr Joel Arthur Schleicher 17.7.2003 Scheme C 200,000 — — — 200,000 7.625 17.7.2003 – 16.7.2008 25.2.2004 Scheme C100,000 — — — 100,000 12.170 25.2.2004 – 24.2.2009

Mr Christopher Patrick Langley OBE 17.7.2003 Scheme C100,000 — — — 100,000 7.625 17.7.2003 – 16.7.2008 25.2.2004 Scheme C100,000 — — — 100,000 12.170 25.2.2004 – 24.2.2009

Mr Manfred Kuhlmann 7.2.2005 Scheme C 100,000 — — — 100,000 17.750 7.2.2005 – 6.2.2010

Total for directors 45,212,000 — 39,152,000 — 6,060,000

Techtronic Industries Co. Ltd. Annual Report 2007 51 Directors’ Report

Share Options (continued) The following table discloses movements in the Company’s share options during the year: (continued)

Employees 30.4.2002 Scheme C 1,215,000 — 1,215,000 — — 3.200 30.4.2002 – 29.4.2007 17.7.2003 Scheme C 2,674,000 — 20,000 48,000 2,606,000 7.625 17.7.2003 – 16.7.2008 19.9.2003 Scheme C204,000 — — — 204,000 8.685 19.9.2003 – 18.9.2008 1.3.2004 Scheme C 5,897,000 — — 813,000 5,084,000 12.525 1.3.2004 – 28.2.2009 14.4.2004 Scheme C200,000 — — — 200,000 12.950 14.4.2004 – 13.4.2009 5.5.2004 Scheme C 300,000 — — 200,000 100,000 11.050 5.5.2004 – 4.5.2009 7.6.2004 Scheme C200,000 — — — 200,000 12.000 7.6.2004 – 6.6.2009 2.10.2004 Scheme C1,000,000 — — — 1,000,000 15.350 2.10.2004 – 1.10.2009 13.12.2004 Scheme C250,000 — — — 250,000 15.710 13.12.2004 –12.12.2009 17.1.2005 Scheme C 150,000 — — 150,000 — 16.520 17.1.2005 – 16.1.2010 7.2.2005 Scheme C100,000 — — — 100,000 17.750 7.2.2005 – 6.2.2010 7.4.2005 Scheme C200,000 — — — 200,000 17.210 7.4.2005 – 6.4.2010 27.4.2005 Scheme C25,000 — — — 25,000 17.660 27.4.2005 – 26.4.2010 10.5.2005 Scheme C 200,000 — — 200,000 — 17.200 10.5.2005 – 9.5.2010 1.6.2005 Scheme C20,000 — — — 20,000 17.420 1.6.2005 – 31.5.2010 17.6.2005 Scheme C250,000 — — — 250,000 17.950 17.6.2005 – 16.6.2010 27.6.2005 Scheme C500,000 — — — 500,000 19.200 27.6.2005 – 26.6.2010 1.1.2006 Scheme C300,000 — — — 300,000 18.690 1.1.2006 – 31.12.2010 1.3.2006 Scheme C 3,564,000 — — 287,000 3,277,000 13.970 1.3.2006 – 28.2.2011 10.3.2006 Scheme C 150,000 — — 150,000 — 14.350 10.3.2006 – 9.3.2011 25.4.2006 Scheme C20,000 — — — 20,000 13.700 25.4.2006 – 24.4.2011 15.6.2006 Scheme C200,000 — — — 200,000 10.270 15.6.2006 – 14.6.2011 17.6.2006 Scheme C350,000 — — — 350,000 10.550 17.6.2006 – 16.6.2011 3.7.2006 Scheme C25,000 — — — 25,000 10.700 3.7.2006 – 2.7.2011 4.10.2006 Scheme C75,000 — — — 75,000 11.628 4.10.2006 – 3.10.2011 1.11.2006 Scheme C1,500,000 — — — 1,500,000 11.252 1.11.2006 – 31.10.2011 3.11.2006 Scheme C100,000 — — — 100,000 11.480 3.11.2006 – 2.11.2011 8.11.2006 Scheme C30,000 — — — 30,000 12.200 8.11.2006 – 7.11.2011 4.12.2006 Scheme C 150,000 — — — 150,000 10.952 4.12.2006 – 3.12.2011 13.12.2006 Scheme C 20,000 — — — 20,000 10.560 13.12.2006 – 11.12.2011 1.1.2007 Scheme C — 150,000 — — 150,000 10.080 1.1.2007 – 31.12.2011 6.3.2007 Scheme C — 7,460,000 — 130,000 7,330,000 10.572 6.3.2007 – 5.3.2012 20.7.2007 Scheme D — 300,000 — — 300,000 10.060 20.7.2007 – 19.7.2012 24.8.2007 Scheme D — 2,740,000 — 30,000 2,710,000 8.390 24.8.2007 – 23.8.2017 16.10.2007 Scheme D — 75,000 — — 75,000 8.810 16.10.2007 – 17.10.2017 7.11.2007 Scheme D — 40,000 — — 40,000 8.088 7.11.2007 – 6.11.2017 23.11.2007 Scheme D — 500,000 — — 500,000 7.578 23.11.2007 – 22.11.2017

Total for employees 19,869,000 11,265,000 1,235,000 2,008,000 27,891,000

Total for all categories 65,081,000 11,265,000 40,387,000 2,008,000 33,951,000

52 Techtronic Industries Co. Ltd. Annual Report 2007 Share Options (continued) The weighted average closing prices of options on their grant date during 2007 and 2006 were HK$9.71 and HK$13.00 respectively.

The closing prices of the Company’s shares immediately before various dates of grant ranged from HK$7.50 to HK$10.12.

The weighted average closing prices of the Company’s shares immediately before various dates during 2007 and 2006 on which the share options were exercised were HK$10.98 and HK$14.81 respectively.

The fair values of the share options granted in 2007 and 2006 measured at various dates of grant ranged from HK$1.56 to HK$2.61 and HK$2.46 to HK$4.72 per option respectively.

Arrangements to Purchase Shares or Debentures Other than as disclosed above, at no time during the year was the Company, or any of its subsidiaries, a party to any arrangements to enable the directors of the Company to acquire beneﬁ ts by means of the acquisition of shares in, or debentures of, the Company or any other body corporate and neither the directors or the chief executive, nor any of their spouses or children under the age of 18, had any right to subscribe for the securities of the Company, or had exercised any such right.

Directors’ Interests in Contracts of Signiﬁ cance No contract of signiﬁ cance, to which the Company, or any of its subsidiaries, was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

Substantial Shareholders’ Interests As at December 31, 2007, the interests and short positions of the following persons, other than directors and the chief executive of the Company, in the shares, underlying shares and debentures of the Company which have been disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO have been recorded in the register kept by the Company pursuant to section 336 of the SFO:

Techtronic Industries Co. Ltd. Annual Report 2007 53 Directors’ Report

Substantial Shareholders’ Interests (continued)

Total interests in Approximate aggregate Name shares (L/S)* percentage of interests

Capital Research and Management Company(1) 117,596,600 (L) 7.83% (L) Prudential Plc(2) 104,024,130 (L) 6.93% (L) Morgan Stanley(3) 119,828,080 (L) 7.98% (L) 119,793,997 (S) 7.98% (S) Och Daniel Saul(4) 262,771,800 (L) 17.50% (L)

* (L/S) represents (Long position/Short position)

Notes:

(1) Funds managed by Capital Research and Management Company hold 117,596,600 shares. (2) The following is a breakdown of the interests in shares of Prudential Plc:

Total interests in shares Approximate Direct Deemed percentage Name Remarks interests (L/S) interests (L/S) of interests

Prudential Plc (2a) — — 104,024,130 (L) 6.93% Prudential Holdings Ltd (2b) — — 104,024,130 (L) 6.93% Prudential Corporation Holdings Ltd. (2b) — — 104,024,130 (L) 6.93% Prudential Asset Management (Hong Kong) Ltd (2b) 104,024,130 (L) — — 6.93%

Remarks:

(2a) Prudential Plc is listed on the London Stock Exchange.

The capacity of Prudential Plc in holding 104,024,130 shares was as a controlled corporation.

(2b) Prudential Holdings Ltd, Prudential Corporation Holdings Ltd and Prudential Asset Management (Hong Kong) Ltd were all direct or indirect subsidiaries of Prudential Plc and by virtue of the SFO. Prudential Plc was deemed to be interested in the shares held by the these subsidiaries.

54 Techtronic Industries Co. Ltd. Annual Report 2007 Substantial Shareholders’ Interests (continued) Notes: (continued)

(3) The following is a breakdown of the interests in shares of Morgan Stanley:

Total interests in shares Approximate Direct Deemed percentage Name Remarks interests (L/S) interests (L/S) of interests

Morgan Stanley (3a) — — 119,828,080 (L) 7.98% ——119,793,997(S)7.98% Morgan Stanley Capital Management, L.L.C. (3b) — — 107,241,949 (L) 7.14% — — 109,321,866 (S) 7.28% Morgan Stanley Domestic Holdings, Inc. (3b) — — 107,241,949 (L) 7.14% — — 109,321,866 (S) 7.28% Morgan Stanley International Incorporated (3b) — — 107,241,949 (L) 7.14% — — 109,321,866 (S) 7.28% Morgan Stanley International Limited (3b) — — 107,204,449 (L) 7.14% — — 109,321,866 (S) 7.28% Morgan Stanley Group (Europe) (3b) — — 107,204,449 (L) 7.14% — — 109,321,866 (S) 7.28% Morgan Stanley UK Group (3b) — — 107,204,449 (L) 7.14% — — 109,321,866 (S) 7.28% Morgan Stanley & Co. International plc. (3b) 107,204,449 (L) — — 7.14% 109,321,866 (S) — — 7.28% Morgan Stanley Swiss Holdings GmbH (3b) 37,500 (L) — — 0.00% Morgan Stanley Capital Services Inc. (3b) 2,114,000 (L) — — 0.14% Morgan Stanley & Co. Inc. (3b) 10,472,131 (L) — — 0.70% 10,472,131 (S) — — 0.70%

Remarks:

(3a) Morgan Stanley is listed on the New York Stock Exchange.

The capacity of Morgan Stanley in holding the 119,828,080 shares of long position and 119,793,997 shares of short position respectively were as a controlled corporation.

(3b) Morgan Stanley Capital Management, L.L.C., Morgan Stanley Domestic Holdings, Inc., Morgan Stanley International Incorporated, Morgan Stanley International Limited, Morgan Stanley Group (Europe), Morgan Stanley UK Group, Morgan Stanley & Co International plc., Morgan Stanley Swiss Holdings GmbH, Morgan Stanley Capital Services Inc., and Morgan Stanley & Co. Inc. were all direct or indirect subsidiaries of Morgan Stanley and by virtue of the SFO, Morgan Stanley was deemed to be interested in the shares held by these subsidiaries.

Techtronic Industries Co. Ltd. Annual Report 2007 55 Directors’ Report

Substantial Shareholders’ Interests (continued) Notes: (continued)

(4) The following is a breakdown of the interests of Och Daniel Saul in shares of the Company:

Total interests in shares Approximate Direct Deemed percentage Name Remarks interests (L/S) interests (L/S) of interests

Och Daniel Saul (4a) — — 262,771,800 (L) 17.50% Och-Ziff Capital Management Group LLC (4a) — — 262,771,800 (L) 17.50% Och-Ziff Holding Corporation (4a) — — 262,771,800 (L) 17.50% OZ Management L.P. (4a) 262,771,800 (L) — — 17.50% OZ Asia Master Fund, Ltd. (4a) 128,691,400 (L) — — 8.57% OZ Master Fund, Ltd. (4a) 122,024,200 (L) — — 8.13% Fleet Maritime, Inc. (4a) 2,275,300 (L) — — 0.15% GPV LVII LLC (4a) 2,544,900 (L) — — 0.17% Goldman Sachs & Co. Proﬁ t Sharing Master Trust (4a) 1,553,900 (L) — — 0.10% OZ Global Special Investments Master Fund, L.P. (4a) 5,682,100 (L) — — 0.38%

Remarks:

(4a) The interests of Och-Ziff Capital Management Group LLC, Och-Ziff Holding Corporation, OZ Management, L.P., OZ Asia Master Fund, Ltd., OZ Master Fund, Ltd., Fleet Maritime, Inc., GPV LVII LLC, Goldman Sachs & Co. Proﬁ t Sharing Master Trust and OZ Global Special Investments Master Fund, L.P. were all attributed to Och Daniel Saul by virtue of the SFO.

Save as disclosed above, no other person was interested in or had a short position in the shares, underlying shares and debentures of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO as at December 31, 2007. Suffi ciency of Public Float The Company has maintained a suffi cient public fl oat throughout the year ended December 31, 2007. Donations During the year, the Group made charitable and other donations totalling HK$4,937,000. Auditor A resolution will be submitted to the Annual General Meeting to re-appoint Messrs Deloitte Touche Tohmatsu as auditor of the Company.

On behalf of the Board

Horst Julius Pudwill Chairman Hong Kong April 16, 2008

56 Techtronic Industries Co. Ltd. Annual Report 2007 Independent Auditor’s Report

TO THE MEMBERS OF TECHTRONIC INDUSTRIES COMPANY LIMITED 創科實業有限公司 (incorporated in Hong Kong with limited liability)

We have audited the consolidated financial statements of Techtronic Industries Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 58 to 134, which comprise the consolidated and Company balance sheets as at December 31, 2007 and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Consolidated Financial Statements The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at December 31, 2007 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong April 16, 2008 Techtronic Industries Co. Ltd. Annual Report 2007 57 Consolidated Income Statement For the year ended December 31, 2007

Notes 2007 2006 2007 2006 HK$’000 HK$’000 US$’000 US$’000 (Note 55) (Note 55)

Turnover 6 24,774,987 21,822,597 3,176,280 2,797,769 Cost of sales (16,965,980) (14,929,737) (2,175,125) (1,914,069)

Gross profit 7,809,007 6,892,860 1,001,155 883,700 Other income 7 377,464 43,423 48,393 5,567 Interest income 8 97,658 91,454 12,520 11,725 Selling, distribution, advertising and warranty expenses (3,478,699) (2,529,631) (445,987) (324,312) Administrative expenses (2,898,057) (2,414,135) (371,546) (309,504) Research and development costs (535,134) (428,311) (68,607) (54,912) Finance costs 9 (459,779) (391,679) (58,946) (50,215)

Profit before restructuring costs, other restructuring and transition costs, share of results of associates and taxation 912,460 1,263,981 116,982 162,049 Restructuring costs 35 (668,481) — (85,703) — Other restructuring and transition costs 35 (74,537) — (9,556) — Share of results of associates (270) (895) (35) (115)

Profit before taxation 169,172 1,263,086 21,688 161,934 Taxation 10 (38,999) (184,017) (5,000) (23,592)

Profit for the year 11 130,173 1,079,069 16,688 138,342

Attributable to: Equity holders of the parent 125,257 1,071,864 16,058 137,418 Minority interests 4,916 7,205 630 924

130,173 1,079,069 16,688 138,342

Dividends paid 14 287,501 279,845 36,859 35,878

Earnings per share (HK/US cents) 15 Basic 8.41 73.18 1.08 9.38

Diluted 7.40 70.12 0.95 8.99

58 Techtronic Industries Co. Ltd. Annual Report 2007 Consolidated Balance Sheet As at December 31, 2007

Notes 2007 2006 2007 2006 HK$’000 HK$’000 US$’000 US$’000 (Note 55) (Note 55)

Assets Non-current assets Property, plant and equipment 16 2,612,534 1,791,746 334,940 229,711 Lease prepayments 17 78,799 66,659 10,102 8,546 Goodwill 18 4,164,129 4,042,996 533,863 518,333 Intangible assets 19 2,176,077 1,620,181 278,984 207,716 Interests in associates 22 203,637 192,989 26,107 24,742 Available-for-sale investments 23 17,058 43,315 2,187 5,553 Deferred tax assets 45 762,907 706,493 97,809 90,576

10,015,141 8,464,379 1,283,992 1,085,177

Current assets Inventories 24 5,951,606 4,019,883 763,026 515,370 Trade and other receivables 25 4,471,844 3,827,038 573,313 490,646 Deposits and prepayments 470,147 544,977 60,275 69,869 Bills receivable 26 469,002 578,560 60,128 74,174 Tax recoverable 271,134 150,312 34,761 19,271 Trade receivables from associates 28 10,053 8,554 1,289 1,097 Held-for-trading investments 29 17,192 7,800 2,204 1,000 Bank balances, deposits and cash 30 3,293,327 3,718,798 422,221 476,769

14,954,305 12,855,922 1,917,217 1,648,196

Current liabilities Trade and other payables 31 4,466,407 3,118,120 572,617 399,759 Bills payable 32 299,223 335,455 38,362 43,007 Warranty provision 33 474,386 369,638 60,819 47,389 Trade payable to an associate 34 — 11,811 — 1,514 Tax payable 286,069 168,769 36,676 21,637 Restructuring provision 35 418,380 — 53,638 — Obligations under finance leases — due within one year 36 17,635 18,535 2,261 2,376 Discounted bills with recourse 37 3,036,449 2,501,155 389,288 320,661 Unsecured borrowings — due within one year 41 2,566,503 421,849 329,038 54,083 Bank overdrafts 30 418,369 268,725 53,637 34,452

11,983,421 7,214,057 1,536,336 924,878

Net current assets 2,970,884 5,641,865 380,881 723,318

Total assets less current liabilities 12,986,025 14,106,244 1,664,873 1,808,495

Techtronic Industries Co. Ltd. Annual Report 2007 59 Consolidated Balance Sheet

Notes 2007 2006 2007 2006 HK$’000 HK$’000 US$’000 US$’000 (Note 55) (Note 55)

Capital and Reserves Share capital 42 150,125 146,522 19,247 18,785 Reserves 6,770,000 6,850,008 867,947 878,208

Equity attributable to equity holders of the parent 6,920,125 6,996,530 887,194 896,993 Minority interests 91,303 81,445 11,706 10,442

Total equity 7,011,428 7,077,975 898,900 907,435

Non-current Liabilities Obligations under finance leases — due after one year 36 134,693 125,529 17,268 16,093 Convertible bonds 38 98,299 1,105,834 12,602 141,774 Unsecured borrowings — due after one year 41 4,240,475 4,464,353 543,650 572,353 Retirement benefits obligations 44 980,528 834,087 125,709 106,934 Deferred tax liabilities 45 520,602 498,466 66,744 63,906

5,974,597 7,028,269 765,973 901,060

12,986,025 14,106,244 1,664,873 1,808,495

The financial statements on pages 58 to 134 were approved and authorised for issue by the Board of Directors on April 16, 2008 and are signed on its behalf by:

Chi Chung Chan Dr Roy Chi Ping Chung JP Group Executive Director Vice Chairman

60 Techtronic Industries Co. Ltd. Annual Report 2007 Balance Sheet As at December 31, 2007

Notes 2007 2006 HK$’000 HK$’000

Assets Non-current assets Property, plant and equipment 16 200,731 196,753 Lease prepayments 17 4,385 4,514 Intangible assets 19 278,013 220,192 Investments in subsidiaries 21 1,182,712 630,546 Interests in associates 22 196,939 184,638 Available-for-sale investments 23 1,695 1,195

1,864,475 1,237,838

Current assets Inventories 24 590,752 428,805 Trade and other receivables 25 29,838 44,663 Deposits and prepayments 288,819 406,444 Bills receivable 26 214,926 349,825 Amounts due from subsidiaries 27 7,917,745 5,969,107 Bank balances, deposits and cash 30 580,400 1,347,008

9,622,480 8,545,852

Current liabilities Trade and other payables 31 826,866 639,384 Bills payable 32 283,013 312,553 Amounts due to subsidiaries 27 70,646 17,934 Trade payable to an associate 34 — 11,811 Tax payable 27,029 10,126 Obligations under finance leases — due within one year 36 827 — Discounted bills with recourse 37 2,327,957 1,859,874 Unsecured borrowings — due within one year 41 1,910,951 38,889

5,447,289 2,890,571

Net current assets 4,175,191 5,655,281

Total assets less current liabilities 6,039,666 6,893,119

Techtronic Industries Co. Ltd. Annual Report 2007 61 Balance Sheet

Notes 2007 2006 HK$’000 HK$’000

Capital and Reserves Share capital 42 150,125 146,522 Reserves 43 5,778,623 5,391,935

5,928,748 5,538,457

Non-current Liabilities Obligations under finance leases — due after one year 36 2,501 — Convertible bonds 38 98,299 1,105,834 Unsecured borrowings — due after one year 41 — 233,334 Deferred tax liabilities 45 10,118 15,494

110,918 1,354,662

6,039,666 6,893,119

Chi Chung Chan Dr Roy Chi Ping Chung JP Group Executive Director Vice Chairman

62 Techtronic Industries Co. Ltd. Annual Report 2007 Consolidated Statement of Changes in Equity For the year ended December 31, 2007

Equity attributable to equity holders of the parent

Convertible Employee Capital bonds share-based Share Share redemption equity Translation compensation Retained Minority Total capital premium reserve reserve reserve reserve profits Total interests equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At January 1, 2006 146,172 2,732,809 — 26,334 (6,205) 6,703 3,206,526 6,112,339 120,670 6,233,009 Exchange differences on translation of foreign operations — — — — 62,691 — — 62,691 146 62,837

Net income recognised directly in equity — — — — 62,691 — — 62,691 146 62,837 Profit for the year — —————1,071,864 1,071,864 7,205 1,079,069

Total recognised income and expense for the year — — — — 62,691 — 1,071,864 1,134,555 7,351 1,141,906

Shares issued at a premium 350 22,040 — — — — — 22,390 — 22,390 Recognition of equity-settled share based payments — ————7,091 — 7,091 — 7,091 Final dividend — 2005 — —————(184,609) (184,609) — (184,609) Interim dividend — 2006 — —————(95,236) (95,236) — (95,236) Interim dividend — 2006 paid by a subsidiary to minority interests — ———————(39,005) (39,005) Acquisition of additional interest in a subsidiary — — ——————(7,571) (7,571)

At December 31, 2006 146,522 2,754,849 — 26,334 56,486 13,794 3,998,545 6,996,530 81,445 7,077,975 Exchange differences on translation of foreign operations — — — — 1,842 — — 1,842 62 1,904

Net income recognised directly in equity — — — — 1,842 — — 1,842 62 1,904 Profit for the year — — ————125,257 125,257 4,916 130,173

Total recognised income and expense for the year — — — — 1,842 — 125,257 127,099 4,978 132,077

Shares issued at a premium 4,039 143,797 —————147,836 — 147,836 Repurchase of shares (436) — 436 — — — (35,175) (35,175) — (35,175) Effect of early redemption of convertible bonds — — — (49,920) — — — (49,920) — (49,920) Release of deferred tax liabilities on early redemption of convertible bonds — — — 5,101 — — — 5,101 — 5,101 Transfer to retained earnings upon early redemption of convertible bonds — — — 20,770 — — (20,770) — — — Recognition of equity-settled share-based payments — — — — — 16,155 — 16,155 — 16,155 Share options lapsed — — — — — (2,152) 2,152 — — — Final dividend — 2006 — — ————(189,636) (189,636) — (189,636) Interim dividend — 2007 — — ————(97,865) (97,865) — (97,865) Acquisition of subsidiaries — — ——————4,880 4,880

At December 31, 2007 150,125 2,898,646 436 2,285 58,328 27,797 3,782,508 6,920,125 91,303 7,011,428

Techtronic Industries Co. Ltd. Annual Report 2007 63 Consolidated Cash Flow Statement For the year ended December 31, 2007

Note 2007 2006 2007 2006 HK$’000 HK$’000 US$’000 US$’000 (Note 55) (Note 55)

Operating Activities Profit before taxation 169,172 1,263,086 21,688 161,934 Adjustments for: Amortisation/write-off of intangible assets 130,940 89,417 16,787 11,464 Amortisation of lease prepayments 1,544 1,402 198 180 Depreciation on property, plant and equipment 559,972 451,278 71,791 57,856 Employee share-based payments 16,155 7,091 2,071 909 Finance costs 459,779 391,679 58,946 50,215 Interest income (97,658) (91,454) (12,520) (11,725) Loss (gain) on disposal of property, plant and equipment 74,694 (6,926) 9,576 (888) Share of the results of associates 270 895 35 115 Discount on acquisition of subsidiaries taken to income (49,340) — (6,326) — Change in fair value of held-for-trading investments (5,571) — (714) —

Operating cash flows before movements in working capital 1,259,957 2,106,468 161,532 270,060 (Increase) decrease in inventories (1,213,207) 40,697 (155,539) 5,218 Decrease (increase) in trade and other receivables, deposits and prepayments 153,767 (549,199) 19,714 (70,410) Decrease (increase) in bills receivable 124,414 (133,105) 15,951 (17,065) Increase in trade receivables from associates (1,499) (7,244) (192) (929) Increase in held-for-trading investments (3,610) (7,800) (463) (1,000) Increase (decrease) in trade and other payables 343,276 (522,540) 44,010 (66,992) Decrease in bills payable (36,232) (215,509) (4,645) (27,629) Increase in restructuring provision 418,380 — 53,638 — (Decrease) increase in warranty provision (22,637) 26,164 (2,902) 3,354 Decrease in trade payable to an associate (11,811) (10,135) (1,514) (1,299) Decrease in retirement benefit obligations (39,178) (25,729) (5,023) (3,299)

Cash generated from operations 971,620 702,068 124,567 90,009 Interest paid (474,231) (364,152) (60,799) (46,686) Hong Kong profits tax paid (79,408) (59,577) (10,181) (7,638) Overseas tax paid (50,795) (227,893) (6,512) (29,217) Hong Kong profits tax refunded 15,735 440 2,017 56 Overseas tax refunded 37,218 17,902 4,772 2,295

Net Cash from Operating Activities 420,139 68,788 53,864 8,819

64 Techtronic Industries Co. Ltd. Annual Report 2007 Note 2007 2006 2007 2006 HK$’000 HK$’000 US$’000 US$’000 (Note 55) (Note 55)

Investing Activities Purchase of property, plant and equipment (855,996) (471,742) (109,743) (60,480) Additions to intangible assets (230,096) (242,846) (29,499) (31,134) Acquisition of subsidiaries (net of cash and cash equivalents acquired) 46 (923,504) — (118,398) — Purchase of additional interest in subsidiaries — (54,074) — (6,933) Purchase of available-for-sale investments (850) (27,757) (109) (3,559) Advances to associates (10,918) (4,431) (1,400) (568) Interest received 97,658 91,454 12,520 11,725 Proceeds from disposal of property, plant and equipment 24,066 34,913 3,085 4,476

Net Cash Used in Investing Activities (1,899,640) (674,483) (243,544) (86,473)

Financing Activities Increase in discounted bills with recourse 535,294 399,984 68,627 51,280 New bank loans obtained 3,324,765 295,247 426,252 37,852 (Decrease) increase in trust receipt loans (104,060) 24,744 (13,341) 3,172 Proceeds from issue of shares 147,836 22,390 18,953 2,871 Repurchase of shares (35,175) — (4,510) — Dividends paid (287,501) (279,845) (36,859) (35,878) Repayment of bank loans (1,405,849) (98,716) (180,237) (12,656) Repayment of convertible bonds (1,043,003) — (133,718) — Dividend paid to minority shareholders — (39,005) — (5,001) Repayment of obligations under finance leases (10,914) (13,346) (1,399) (1,711)

Net Cash from Financing Activities 1,121,393 311,453 143,768 39,929

Net Decrease in Cash and Cash Equivalents (358,108) (294,242) (45,912) (37,725)

Cash and Cash Equivalents at Beginning of the Year 3,450,073 3,807,194 442,317 488,102 Effect of Foreign Exchange Rate Changes (217,007) (62,879) (27,821) (8,060)

Cash and Cash Equivalents at End of the Year 2,874,958 3,450,073 368,584 442,317

Analysis of the Balances of Cash and Cash Equivalents Represented by: Bank balances, deposits and cash 3,293,327 3,718,798 422,221 476,769 Bank overdrafts (418,369) (268,725) (53,637) (34,452)

2,874,958 3,450,073 368,584 442,317

Techtronic Industries Co. Ltd. Annual Report 2007 65 Notes to the Consolidated Financial Statements For the year ended December 31, 2007

1. General The Company is a public limited company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of the registered office and principal place of business of the Company is 24/F., CDW Building, 388 Castle Peak Road, Tsuen Wan, N.T., Hong Kong.

The principal activities of the Group are the manufacturing and trading of electrical and electronic products.

The consolidated financial statements have been presented in Hong Kong dollars as the Company is a public limited company incorporated in Hong Kong and the principal place of business of the Company is situated in Hong Kong. The functional currency of the Company is United States Dollars.

2. Application of New Hong Kong Financial Reporting Standards In the current year, the Group has applied, for the first time, the following new standards (“HKAS” and “HKFRS”), amendment and interpretations (“HK(IFRIC)”) (collectively referred to as the “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are effective for the Group’s financial year beginning on January 1, 2007.

HKAS 1 (Amendment) Capital Disclosures HKFRS 7 Financial Instruments: Disclosures HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared. Accordingly, no prior period adjustment has been required.

The Group has applied the disclosure requirements under HKAS 1 (Amendment) and HKFRS 7 retrospectively. Certain information presented in the prior year under the requirements of HKAS 32 has been removed and the relevant comparative information based on the requirements of HKAS 1 (Amendment) and HKFRS 7 has been presented for the first time in the current year.

The Group has not early applied the following new and revised standards or interpretations that have been issued but are not yet effective.

66 Techtronic Industries Co. Ltd. Annual Report 2007 2. Application of New Hong Kong Financial Reporting Standards (continued) HKAS 1 (Revised) Presentation of Financial Statements1 HKAS 23 (Revised) Borrowing Costs1 HKAS 27 (Revised) Consolidated and Separate Financial Statements2 HKFRS 2 (Amendment) Vesting Conditions and Cancellations1 HKFRS 3 (Revised) Business Combinations2 HKFRS 8 Operating Segments1 HK(IFRIC)-Int 11 HKFRS 2: Group and Treasury Share Transactions3 HK(IFRIC)-Int 12 Service Concession Arranagements4 HK(IFRIC)-Int 13 Customer Loyalty Programmes5 HK(IFRIC)-Int 14 HKAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction4

1 Effective for annual periods beginning on or after January 1, 2009 2 Effective for annual periods beginning on or after July 1, 2009 3 Effective for annual periods beginning on or after March 1, 2007 4 Effective for annual periods beginning on or after January 1, 2008 5 Effective for annual periods beginning on or after July 1, 2008

HKAS 23 (Revised) eliminated the option available under the previous version of HKAS 23 to recognise all borrowing costs immediately as an expense. To the extent that borrowing costs relate to the acquisition, construction or production of a qualifying asset, HKAS 23 (Revised) requires that they be capitalised as part of the cost of that asset. All other borrowing costs should be expensed as incurred. The Group currently expenses all borrowing costs as incurred. As a result of the application of HKAS 23 (Revised), borrowing costs related to the acquisition, construction or production of a qualifying asset will be capitalised.

The adoption of HKFRS 3 (revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions.

The directors of the Company anticipate that the application of the other new or revised standards and interpretations will have no material impact on the results and the financial position of the Group.

Techtronic Industries Co. Ltd. Annual Report 2007 67 Notes to the Consolidated Financial Statements

3. Significant Accounting Policies The consolidated financial statements have been prepared on the historical cost convention except for certain financial instruments, which are measured at fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Companies Ordinance.

Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and its entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiaries’ equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Acquisition of Additional Interests in Subsidiaries Goodwill arising on acquisition of additional interest in subsidiaries represents the excess of the cost of the acquisition over the fair value of the net assets attributable to the additional interest in the subsidiaries. The difference between the fair values and the carrying values of the underlying assets and liabilities attributable to the additional interests in subsidiaries is debited to reserve.

Business Combinations The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

68 Techtronic Industries Co. Ltd. Annual Report 2007 3. Significant Accounting Policies (continued) Goodwill Goodwill arising on acquisitions prior to January 1, 2005 Goodwill arising on an acquisition of net assets and operations of another entity for which the agreement date is before January 1, 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition.

For previously capitalised goodwill arising on acquisitions of net assets and operation of another entity, the Group has discontinued amortisation from January 1, 2005 onwards, and such goodwill is tested for impairment annually and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired.

Goodwill arising on acquisitions on or after January 1, 2005 Goodwill arising on an acquisition of a business for which the agreement date is on or after January 1, 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant business at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a business is presented separately in the balance sheet.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of the relevant cash-generating unit, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Investments in Subsidiaries Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

Interests in Associates An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of net assets of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Techtronic Industries Co. Ltd. Annual Report 2007 69 Notes to the Consolidated Financial Statements

3. Significant Accounting Policies (continued) Intangible Assets Intangible assets acquired separately Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.

Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

Research and Development Expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortised on a straight-line basis over its useful life and carried at cost less subsequent accumulated amortisation and any accumulated impairment losses.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible asset is reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

70 Techtronic Industries Co. Ltd. Annual Report 2007 3. Significant Accounting Policies (continued) Leasehold Land and Buildings The land and buildings elements of a lease of land and buildings are considered separately for the purpose of lease classification. Leasehold land where title is not expected to pass to the lessee by the end of the lease term is classified as an operating lease unless the lease payments cannot be allocated reliably between the land and building elements in which case, the entire lease is classified as a finance lease.

Property, Plant and Equipment Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

Construction in progress includes property, plant and equipment in the course of construction for production are carried at cost, less any recognised impairment losses. Cost includes professional fees capitalised in accordance with the Group’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property, plant and equipment, commences when the assets are ready for their intended use.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

Impairment Losses on Tangible and Intangible Assets other than Goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Financial Instruments Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Techtronic Industries Co. Ltd. Annual Report 2007 71 Notes to the Consolidated Financial Statements

3. Significant Accounting Policies (continued) Financial Instruments (continued) Financial Assets The Group’s financial assets are classified into one of the three categories, including financial assets at fair value through profit or loss (“FVTPL”), loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL, of which interest income is included in net gains or losses.

Financial assets at fair value through profit or loss Financial assets at FVTPL include financial assets held for trading.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near future; or

• it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

At each balance sheet date subsequent to initial recognition, financial assets at FVTPL are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables, bills receivable, trade receivables from associates, amounts due from subsidiaries, bank balances, deposits and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy in respect of impairment loss on financial assets below).

Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition (see accounting policy in respect of impairment loss on financial assets below).

72 Techtronic Industries Co. Ltd. Annual Report 2007 3. Significant Accounting Policies (continued) Financial Instruments (continued) Financial Assets (continued) Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted.

For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables and trade receivables from associates, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 120 days and observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Techtronic Industries Co. Ltd. Annual Report 2007 73 Notes to the Consolidated Financial Statements

3. Significant Accounting Policies (continued) Financial Instruments (continued) Financial liabilities and equity Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s all financial liabilities are generally classified as other financial liabilities.

Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

Convertible bonds Convertible bonds issued by the Company that contain both the liability and conversion option components are classified separately into their respective items on initial recognition.

Conversion options that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instrument is classified as an equity instrument. On initial recognition, the fair value of the liability component is determined using the prevailing market interest of similar non-convertible debts. The difference between the gross proceeds of the issue of the convertible bonds and the fair value assigned to the liability component, representing the conversion option for the holder to convert the bonds into equity, is included in equity (convertible bonds equity reserve).

In subsequent periods, the liability component of the convertible bonds is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in the convertible bonds equity reserve until the embedded option is exercised (in which case the balance stated in convertible bonds equity reserve will be transfer to retained profits). Where the option remains unexercised at the expiry date, the balance stated in the convertible bonds equity reserve will be released to retained profits. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of the proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible bonds using the effective interest method.

Upon redemption of the convertible bonds, the redemption consideration will be allocated to the liability component and equity component using the same allocation basis as when the convertible bonds were originally issued.

Differences between the fair value and the carrying amount of the liability component will be recognised in the consolidated income statements. The difference between the redemption consideration and the fair value of the liability component will be included in equity (convertible bonds equity reserve) and released to retained profits.

74 Techtronic Industries Co. Ltd. Annual Report 2007 3. Significant Accounting Policies (continued) Financial Instruments (continued) Financial liabilities and equity (continued) Other financial liabilities Other financial liabilities (including unsecured borrowings, trade payables and other payables, bills payable, trade payable to an associate, obligation under finance leases, discounted bills with recourse, bank overdrafts and amount due to subsidiaries/associates) are subsequently measured at amortised cost, using the effective interest method.

Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Share repurchase On share repurchase, the issued share capital of the Company will be reduced by the nominal value of the repurchased shares and such amount will transferred to capital redemption reserve. The premium paid on the repurchase, after deducting related expenses, will be charged to retained profits.

Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss. If the Group retains substantially all the risks and rewards of ownership of a transferred asset, the Group continues to recognise the financial asset and recognise a collateralised borrowing for proceeds received.

Financial liabilities are removed from the balance sheet when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration is recognised in profit or loss.

Provisions Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.

A provision for warranties is recognised at the time the products are sold based on the estimated cost using historical data for level of repairs and replacements.

A provision for restructuring provision is recognised in the balance sheet on conditions that the Group has detailed formal plan and has raised a valid expectation in those affected that the plan will carried out, by starting to implement that plan or by announcing that its main features to those affect it.

For provision in relation to employee termination benefits, the liability and expenses are recognised when the Group committed to terminate the employment of an employment of an employee or group of employees before their normal retirement date or provide termination benefits as a result of an offer made to encourage voluntary redundancy.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Techtronic Industries Co. Ltd. Annual Report 2007 75 Notes to the Consolidated Financial Statements

3. Significant Accounting Policies (continued) Revenue Recognition Turnover is measured at the fair value of the net amounts received or receivable and represents amounts for goods sold by the Group to outsider customers in normal course of business, less return and allowances, and commission income and royalty income received.

Turnover from sales of goods is recognised when goods are delivered and title has passed.

Commission income is recognised when services are provided.

Royalty income is recognised on a time proportion basis in accordance with the terms of the relevant agreements.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the shareholders’ right to receive payment have been established.

Taxation Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the difference between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group as a parent is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity.

76 Techtronic Industries Co. Ltd. Annual Report 2007 3. Significant Accounting Policies (continued) Foreign Currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after January 1, 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

Goodwill and fair value adjustments arising on acquisitions of foreign operations prior to January 1, 2005 are treated as non-monetary foreign currency items of the acquirer and reported using the historical exchange rate prevailing at the date of the acquisition.

Borrowing Costs All borrowing costs are recognised as and included in finance costs in the consolidated income statement an expense in the period in which they are incurred.

Equity-settled Share-Based Payment Transactions For share options granted to employees of the Group, the fair value of services received determined by reference to the fair value of share options granted at the grant date is recognised as an expense on a straight-line basis over the vesting period, with a corresponding increase in equity (employee share-based compensation reserve).

At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, with a corresponding adjustment to share options reserve.

At the time when the share options are exercised, the amount previously recognised in employee share-based compensation reserve will be transferred to share premium. When the share options are forfeited or are still not exercised at the expiry date, the amount previously recognised in the share option reserve will be transferred to retained profits.

Techtronic Industries Co. Ltd. Annual Report 2007 77 Notes to the Consolidated Financial Statements

3. Significant Accounting Policies (continued) Retirement Benefit Schemes Retirement benefits arrangements are made in accordance with the relevant laws and regulations. Payments to defined contribution retirement benefit schemes and Mandatory Provident Fund Scheme are charged as expenses when employees have rendered service entitling them to the contributions.

For defined contribution retirement benefit schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. All actuarial gains and losses of defined benefit plans are recognised immediately in the consolidation income statement in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested.

The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

4. Key Sources of Accounting Estimates The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are disclosed below.

Estimated Impairment of Goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash- generating unit and a suitable discount rate in order to calculate the present value. As at December 31, 2007, the carrying amount of goodwill is HK$4,164,129,000 (2006: HK$4,042,996,000). Details of the recoverable amount calculation are disclosed in Note 20.

Estimated Impairment of Intangible Assets During the year, management reassessed the carrying amount of its intangible assets. As at December 31, 2007, the carrying amount of intangible assets is HK$2,176,077,000 (2006: HK$1,620,181,000). In determining whether the intangible asset is impaired, the management takes into consideration the anticipated revenues and estimated future cash flows from the underlying projects, and the progress of these projects. When the actual revenues and future cash flows are less than expected, a material loss may arise. Management is confident that the carrying amount of the asset will be recovered in full. This situation will be closely monitored, and adjustments will be made in future periods, if future market activity indicates that such adjustments are appropriate.

Useful lives and Impairment Assessment of Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and identified impairment losses. As at December 31, 2007, the carrying amount of property, plant and equipment is HK$2,612,534,000 (2006: HK$1,791,746,000). The estimation of their useful lives impacts the level of annual depreciation expense recorded. The estimated useful life and dates that the Group place the equipment into production use reflects the directors estimate of the periods that the Group intend to derive future economic benefits from the use of the Group’s plant and equipment. Property, plant and equipment are evaluated for possible impairment on a specific asset basis or in groups of similar assets, as applicable. This process requires management’s estimate of future cash flows generated by each asset or group of assets. For any instance where this evaluation process indicates impairment, the appropriate assets carrying values are written down to the recoverable amount and the amount of the write-down is charged against the results of operations.

78 Techtronic Industries Co. Ltd. Annual Report 2007 4. Key Sources of Accounting Estimates (continued) Income Taxes As at December 31, 2007, a deferred tax asset of HK$196,557,000 (2006: HK$195,563,000) in relation to unused tax losses and HK$116,660,000 (2006: HK$156,598,000) in relation to employee related provisions has been recognised in the Group’s balance sheet. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of the deferred tax asset may arise, which would be recognised in the income statement for the period in which such a reversal takes place.

Restructuring Provision During the year, the Group implemented a strategic repositioning plan to close down some manufacturing plants and transfer certain production capabilities to Mainland China. This resulted in a provision for restructuring charges. As at December 31, 2007, the carrying amount of restructuring provision is HK$418,380,000 (2006: nil). The restructuring provision includes only the direct expenditures arising from the restructuring, which are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Also, the provision is recognised in the balance sheet on conditions that an entity has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Estimated Impairment of Trade and Other Receivables, Bills Receivable and Amounts Due from Associates Where there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2007, the carrying amount of trade and other receivables and amounts due from associates is HK$5,140,307,000.

Techtronic Industries Co. Ltd. Annual Report 2007 79 Notes to the Consolidated Financial Statements

5. Business and Geographical Segments Business Segments For management purposes, the Group is engaged in the manufacturing and trading of electrical and electronic products. The segment information is disclosed in accordance with different types of products as its primary segment information.

Income Statement For the year ended December 31, 2007

Power Equipment Floor care Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000

Turnover External sales 16,877,407 7,897,580 — 24,774,987 Inter-segment sales 4,818 252,646 (257,464) —

Total 16,882,225 8,150,226 (257,464) 24,774,987

Inter-segment sales are charged at prevailing market rates.

Result Segment results before restructuring costs and other restructuring and transition costs 1,225,677 146,562 — 1,372,239 Restructuring costs (267,783) (400,698) — (668,481) Other restructuring and transition costs (40,346) (34,191) — (74,537)

Segment results after restructuring costs and other restructuring and transition costs 917,548 (288,327) — 629,221 Finance costs (459,779) Share of results of associates (270)

Profit before taxation 169,172 Taxation (38,999)

Profit for the year 130,173

80 Techtronic Industries Co. Ltd. Annual Report 2007 5. Business and Geographical Segments (continued) Business Segments (continued) Balance Sheet As at December 31, 2007

Power Equipment Floor care Consolidated HK$’000 HK$’000 HK$’000

Assets Segment assets 14,912,940 5,525,501 20,438,441 Interests in associates 203,637 Unallocated corporate assets 4,327,368

Consolidated total assets 24,969,446

Liabilities Segment liabilities (7,094,685) (2,629,044) (9,723,729) Unallocated corporate liabilities (8,234,289)

Consolidated total liabilities (17,958,018)

Other Information For the year ended December 31, 2007

Power Equipment Floor care Consolidated HK$’000 HK$’000 HK$’000

Capital additions 957,359 226,678 1,184,037 Acquisition of subsidiaries 251,981 2,202,098 2,454,079 Depreciation and amortisation 515,230 177,226 692,456

Techtronic Industries Co. Ltd. Annual Report 2007 81 Notes to the Consolidated Financial Statements

5. Business and Geographical Segments (continued) Business Segments (continued) Income Statement For the year ended December 31, 2006

Power Equipment Floor care Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000

Turnover External sales 17,115,746 4,706,851 — 21,822,597 Inter-segment sales 14,914 207,099 (222,013) —

Total 17,130,660 4,913,950 (222,013) 21,822,597

Inter-segment sales are charged at prevailing market rates

Result Segment results 1,462,030 193,630 — 1,655,660 Finance costs (391,679) Share of results of associates (895)

Profit before taxation 1,263,086 Taxation (184,017)

Profit for the year 1,079,069

82 Techtronic Industries Co. Ltd. Annual Report 2007 5. Business and Geographical Segments (continued) Business Segments (continued) Balance Sheet As at December 31, 2006

Power Equipment Floor care Consolidated HK$’000 HK$’000 HK$’000

Assets Segment assets 13,580,527 2,971,182 16,551,709 Interests in associates 192,989 Unallocated corporate assets 4,575,603

Consolidated total assets 21,320,301

Liabilities Segment liabilities (5,756,797) (1,565,884) (7,322,681) Unallocated corporate liabilities (6,919,645)

Consolidated total liabilities (14,242,326)

Other Information For the year ended December 31, 2006

Power Equipment Floor care Consolidated HK$’000 HK$’000 HK$’000

Capital additions 665,394 102,641 768,035 Depreciation and amortisation 433,635 108,462 542,097

The Laser and Electronics segment has been grouped under the Floor Care segment this year as group management has concluded that both segments have the same marketing channels and enhance the consumer household brand category in a wide range of products.

Techtronic Industries Co. Ltd. Annual Report 2007 83 Notes to the Consolidated Financial Statements

5. Business and Geographical Segments (continued) Geographical Segments (i) The following table provides an analysis of the Group’s sales by geographical market location:

Turnover 2007 2006 HK$’000 HK$’000

By geographical market location: North America 18,103,801 16,081,779 Europe 5,688,905 4,594,386 Other countries 982,281 1,146,432

24,774,987 21,822,597

(ii) The following table provides an analysis of segment assets and additions to property, plant and equipment and intangible assets, analysed by geographical areas in which the assets are located:

Additions to property, Carrying amount plant and equipment of segment assets and intangible assets 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong and People’s Republic of China (“PRC”) 4,698,247 3,323,091 751,379 416,928 North America 11,625,020 9,619,512 186,179 155,701 Europe 3,590,628 3,201,559 168,637 160,488 Other countries 524,546 407,547 77,842 34,918

20,438,441 16,551,709 1,184,037 768,035

6. Turnover Turnover represents the fair value of the net amounts received and receivable for goods sold by the Group to outside customers, less returns and allowances, and commission income and royalty income received during the year and is analysed as follows:

2007 2006 HK$’000 HK$’000

Sale of goods 24,768,061 21,751,691 Commission income — 6,403 Royalty income 6,926 64,503

24,774,987 21,822,597

84 Techtronic Industries Co. Ltd. Annual Report 2007 7. Other Income Other income included settlement of a disputed legal matters. The settlement agreement contains non-disclosure items concerning the nature of the dispute, the parties to the dispute and other terms of the agreement. Other income also included discount on acquisition of subsidiaries taken to income amounted to HK$49,340,000.

Other than the disclosure of above items, the amount also included various releasing of overprovided accrued obligations and liabilities.

8. Interest Income

2007 2006 HK$’000 HK$’000

Interest earned on bank deposits 87,495 81,542 Interest earned on amount due from an associate 10,163 9,912

97,658 91,454

9. Finance Costs

2007 2006 HK$’000 HK$’000

Interest on: Bank loans and overdrafts wholly repayable within five years 224,724 129,075 Obligations under finance leases 9,567 6,805 Fixed interest rate notes 239,940 228,272 Effective interest expense on convertible bonds 14,385 27,527

Total interest 488,616 391,679 Debt extinguishment gain (28,837) —

459,779 391,679

Techtronic Industries Co. Ltd. Annual Report 2007 85 Notes to the Consolidated Financial Statements

10. Taxation

2007 2006 HK$’000 HK$’000

Current tax: Hong Kong profits tax 89,698 52,813 Underprovision in prior years 8,877 3,272 98,575 56,085 Overseas taxation (6,589) 187,453 Overprovision in prior years (16,329) (2,804) (22,918) 184,649 Deferred tax (Note 45): Current year (35,925) (56,717) Attributable to a change in tax rate (733) —

(36,658) (56,717)

38,999 184,017

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profits for both years.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

Pursuant to the relevant laws and regulations in the People’s Republic of China (the PRC), the Group’s PRC subsidiaries are exempted from PRC income tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. During the year, the PRC subsidiaries were under the 50% reduction period.

The tax expenses for the year are reconciled as follows:

2007 2006 HK$’000 HK$’000

Profit before taxation 169,172 1,263,086

Tax at Hong Kong profits tax rate 29,606 221,040 Effect of different tax rates of subsidiaries operating in other jurisdictions (116,307) 75,955 Tax effect of expenses not deductible for tax purposes 129,127 37,306 Tax effect of income not taxable for tax purposes (131,509) (153,758) Tax effect of temporary differences not recognised 186,548 14,448 Recognition of temporary differences previously not recognised (50,833) (10,500) (Over)underprovision in respect of prior years (7,452) 468 Others (181) (942)

Tax expenses for the year 38,999 184,017

Details of deferred tax are set out in Note 45.

86 Techtronic Industries Co. Ltd. Annual Report 2007 11. Profit for the Year

2007 2006 HK$’000 HK$’000

Profit for the year has been arrived at after charging (crediting):

Amortisation of intangible assets 130,940 89,417 Auditors’ remuneration 22,112 18,234 Amortisation of lease prepayments 1,544 1,402 Change in fair value of held-for-trading investments 5,571 — Depreciation on property, plant and equipment Owned assets 553,526 441,970 Assets held under finance leases 6,446 9,308 Impairment loss on trade receivables 21,960 8,038 Loss (gain) on disposal of property, plant and equipment 74,694 (6,926) Discount on acquisition of subsidiaries taken to income (49,340) — Net exchange gain (228,279) (8,438) Operating lease expenses recognised in respect of: Premises 135,236 125,756 Motor vehicles 45,604 39,439 Plant and machinery 35,231 21,299 Other assets 26,415 23,794 Write down of inventories 100,079 37,655 Staff costs Directors’ remuneration Fees 1,000 1,000 Other emoluments 49,905 48,900

50,905 49,900 Other staff costs 2,588,661 2,006,006 Retirement benefits scheme contributions (other than those included in the Directors’ emoluments) Defined contribution plans 69,556 93,331 Defined benefit plans 43,027 21,102

2,752,149 2,170,339

Staff costs disclosed above do not include an amount of HK$434,599,000 (2006: HK$285,968,000) relating to research and development activities, which is included under research and development costs.

The net exchange gain arisen during the year was derived from the operations of the Group, but not related to financial instruments held for trading.

Techtronic Industries Co. Ltd. Annual Report 2007 87 Notes to the Consolidated Financial Statements

12. Directors’ Emoluments The emoluments paid or payable to each of the 9 (2006: 9) directors were as follows:

For the year ended December 31, 2007

Other emoluments Contributions to retirement Salaries and benefits Share-based Fees other benefits schemes payments Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Mr Horst Julius Pudwill — 25,547 12 — 25,559 Dr Roy Chi Ping Chung JP — 8,527 12 — 8,539 Mr Kin Wah Chan — 6,325 12 — 6,337 Mr Chi Chung Chan — 6,340 12 — 6,352 Mr Stephan Horst Pudwill — 1,720 12 — 1,732 Mr Vincent Ting Kau Cheung 250 220 — — 470 Mr Joel Arthur Schleicher 250 386 — — 636 Mr Christopher Patrick Langley OBE 250 390 — — 640 Mr Manfred Kuhlmann 250 390 — — 640

Total 1,000 49,845 60 — 50,905

For the year ended December 31, 2006

Other emoluments Contributions to retirement Salaries and benefits Share-based Fees other benefits schemes payments Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Mr Horst Julius Pudwill — 25,516 12 — 25,528 Dr Roy Chi Ping Chung JP — 8,441 12 — 8,453 Mr Kin Wah Chan — 5,977 12 — 5,989 Mr Chi Chung Chan — 6,039 12 — 6,051 Mr Stephan Horst Pudwill — 1,695 12 — 1,707 Mr Vincent Ting Kau Cheung 250 183 — — 433 Mr Joel Arthur Schleicher 250 305 — — 555 Mr Christopher Patrick Langley OBE 250 342 — — 592 Mr Manfred Kuhlmann 250 342 — — 592

Total 1,000 48,840 60 — 49,900

88 Techtronic Industries Co. Ltd. Annual Report 2007 13. Employees’ Emoluments Of the five individuals with the highest emoluments in the Group, four (2006: four) were group directors of the Company whose emoluments are included in Note 12 above. The emoluments of the remaining one (2006: one) individual was as follows:

2007 2006 HK$’000 HK$’000

Salaries and other benefits 11,615 4,863 Contributions to retirement benefits schemes 12 23 11,627 4,886

During each of the two years ended December 31, 2007 and 2006, no emoluments have been paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss of office. No director has waived any emoluments during those years.

14. Dividends Paid

2007 2006 HK$’000 HK$’000

Final dividend paid: 2006: HK 12.60 cents (2005: HK 12.60 cents) per share 189,636 184,609 Interim dividend paid: 2007: HK 6.50 cents (2006: HK 6.50 cents) per share 97,865 95,236

287,501 279,845

The final dividend in respect of the current financial year of HK1.50 cents per share (2006: HK12.60 cents per share) has been proposed by the directors and is subject to approval by the shareholders in the Annual General Meeting.

Techtronic Industries Co. Ltd. Annual Report 2007 89 Notes to the Consolidated Financial Statements

15. Earnings per Share The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the following data:

2007 2006 HK$’000 HK$’000 Earnings for the purpose of basic earnings per share: Profit for the year attributable to equity holders of the parent 125,257 1,071,864

Effect of dilutive potential ordinary shares: Effective interest on convertible bonds 14,385 22,710 Debt extinguishment gain (28,837) —

Earnings for the purpose of diluted earnings per share 110,805 1,094,574

Weighted average number of ordinary shares for the purpose of basic earnings per share 1,490,103,389 1,464,595,829

Effect of dilutive potential ordinary shares: Share options 1,071,527 30,435,277 Convertible bonds 5,722,679 65,922,585

Weighted average number of ordinary shares for the purpose of diluted earnings per share 1,496,897,595 1,560,953,691

90 Techtronic Industries Co. Ltd. Annual Report 2007 16. Property, Plant and Equipment

Freehold land Office and buildings equipment, outside Leasehold furniture and Plant and Motor Moulds and Construction Hong Kong improvements fixtures machinery vehicles tooling Vessels in progress Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Group Cost At January 1, 2006 888,936 175,433 742,667 1,798,570 30,825 2,080,178 11,835 150,238 5,878,682 Currency realignment 40,362 1,646 20,703 66,748 1,018 46,887 — 2,402 179,766 Additions 14,289 25,966 68,459 79,585 4,173 138,709 64 141,915 473,160 Disposals (54,540) (9,661) (16,186) (40,285) (2,428) (180,563) — — (303,663) Reclassification 36,492 10,335 17,504 51,565 (459) 37,216 — (152,653) —

At December 31, 2006 925,539 203,719 833,147 1,956,183 33,129 2,122,427 11,899 141,902 6,227,945 Currency realignment 44,118 2,855 23,919 80,220 1,128 57,684 — 11,729 221,653 Additions 13,433 69,985 125,633 111,242 13,157 199,939 14 326,307 859,710 Acquisition of subsidiaries 242,064 4,741 45,724 254,218 3,640 20,775 — — 571,162 Disposals — (50,360) (84,228) (251,925) (10,415) (748,884) (840) (2,288) (1,148,940) Reclassification (4,829) 2,416 39,905 (15,581) — 40,251 — (69,141) (6,979)

At December 31, 2007 1,220,325 233,356 984,100 2,134,357 40,639 1,692,192 11,073 408,509 6,724,551

Depreciation and Amortisation At January 1, 2006 297,086 116,928 528,081 1,328,464 22,295 1,825,184 5,619 — 4,123,657 Currency realignment 20,395 541 13,386 56,495 601 45,522 — — 136,940 Provided for the year 31,807 17,387 87,844 116,227 3,282 193,020 1,711 — 451,278 Eliminated on disposals (34,275) (7,926) (16,079) (35,893) (2,394) (179,109) — — (275,676) Reclassification — 26 864 (878) (137) 125 — — —

At December 31, 2006 315,013 126,956 614,096 1,464,415 23,647 1,884,742 7,330 — 4,436,199 Currency realignment 22,352 701 14,397 65,868 693 54,192 — — 158,203 Provided for the year 51,349 23,699 106,765 158,659 4,750 213,033 1,717 — 559,972 Acquisition of subsidiaries — 281 5,365 1,395 783 — — — 7,824 Eliminated on disposals — (50,136) (80,326) (164,394) (10,299) (744,186) (840) — (1,050,181) Reclassification — (9) (35) (71) 48 67 — — —

At December 31, 2007 388,714 101,492 660,262 1,525,872 19,622 1,407,848 8,207 — 4,112,017

Net Book Values At December 31, 2007 831,611 131,864 323,838 608,485 21,017 284,344 2,866 408,509 2,612,534

At December 31, 2006 610,526 76,763 219,051 491,768 9,482 237,685 4,569 141,902 1,791,746

Techtronic Industries Co. Ltd. Annual Report 2007 91 Notes to the Consolidated Financial Statements

16. Property, Plant and Equipment (continued)

Office Buildings equipment, outside Leasehold furniture and Plant and Moulds and Hong Kong improvements fixtures machinery Motor vehicles tooling Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Company Cost At January 1, 2006 65,945 68,481 123,578 136,880 10,570 578,337 983,791 Additions — 16,062 16,120 14,943 920 37,109 85,154 Transfer from (to) subsidiaries — 258 (879) 13,652 — (39,171) (26,140) Disposals — — (6) (947) (1,401) (973) (3,327)

At December 31, 2006 65,945 84,801 138,813 164,528 10,089 575,302 1,039,478 Currency realignment — — — 196 — — 196 Additions — 3,530 17,324 16,827 3,899 52,736 94,316 Transfer (to) from subsidiaries — — — (5,464) — 7,760 2,296 Disposals — (36,393) (37,775) (56,807) (5,528) (446,145) (582,648)

At December 31, 2007 65,945 51,938 118,362 119,280 8,460 189,653 553,638

Depreciation and Amortisation At January 1, 2006 23,397 57,184 90,690 117,078 9,278 489,332 786,959 Provided for the year 2,638 6,136 16,576 13,883 774 43,442 83,449 Transfer to subsidiaries — — (784) (1,463) — (22,521) (24,768) Eliminated on disposals — — (5) (947) (1,401) (562) (2,915)

At December 31, 2006 26,035 63,320 106,477 128,551 8,651 509,691 842,725 Provided for the year 2,638 7,857 15,697 13,992 862 46,754 87,800 Currency realignment — — — 65 — — 65 Transfer (to) from subsidiaries — — — (1,720) — 6,339 4,619 Eliminated on disposals — (36,393) (37,648) (56,807) (5,309) (446,145) (582,302)

At December 31, 2007 28,673 34,784 84,526 84,081 4,204 116,639 352,907

Net Book Values At December 31, 2007 37,272 17,154 33,836 35,199 4,256 73,014 200,731

At December 31, 2006 39,910 21,481 32,336 35,977 1,438 65,611 196,753

The above property, plant and equipment, other than construction in progress, are depreciated on a straight-line basis, at the following rates per annum:

Freehold land Nil Buildings 4% Leasehold improvements 2.5% – 25% 1 Office equipment, furniture and fixtures 10% – 33 /3% Plant and machinery 10% – 25% Motor vehicles 18% – 25% 1 Moulds and tooling 20% – 33 /3% Vessels 20%

92 Techtronic Industries Co. Ltd. Annual Report 2007 16. Property, Plant and Equipment (continued) The net book values of properties shown above comprise:

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Land and buildings are situated outside Hong Kong and are analysed as follows: Freehold 752,812 570,616 — — Medium-term lease 78,799 39,910 37,272 39,910

831,611 610,526 37,272 39,910

The net book values of the Group’s and the Company’s property, plant and equipment include amounts of approximately HK$100,290,000 and HK$3,312,000 respectively (2006: HK$137,833,000 and Nil respectively) in respect of assets held under finance leases.

The gross carrying amount of the Group’s and the Company’s property, plant and equipment include amounts of approximately HK$1,880,717,000 and HK$188,155,000 (2006: HK$1,890,000,000 and HK$249,000,000) respectively in respect of fully depreciated property, plant and equipment that is still in use.

17. Lease Prepayments

The Group The Company HK$’000 HK$’000 Cost At January 1, 2006 68,883 6,449 Currency realignment 2,300 —

At December 31, 2006 71,183 6,449 Currency realignment 4,871 — Acquisition of subsidiaries 2,068 — Reclassification from construction in progress 6,979 —

At December 31, 2007 85,101 6,449

Amortisation At January 1, 2006 3,054 1,806 Currency realignment 68 — Provided for the year 1,402 129

At December 31, 2006 4,524 1,935 Currency realignment 234 — Provided for the year 1,544 129

At December 31, 2007 6,302 2,064

Net Book Values At December 31, 2007 78,799 4,385

At December 31, 2006 66,659 4,514

All lease prepayments are medium-term leases outside Hong Kong.

The transfer in of prepaid lease payments of HK$6,979,000 represents a reclassification from property, plant and equipment after the land excavation work was completed. Techtronic Industries Co. Ltd. Annual Report 2007 93 Notes to the Consolidated Financial Statements

18. Goodwill The Group HK$’000 Cost At January 1, 2006 3,990,967 Currency realignment 5,466 Arising on acquisition of additional interest of subsidiaries 46,563

At December 31, 2006 and at January 1, 2007 4,042,996 Currency realignment 26,902 Arising on acquisition of subsidiaries 94,231

At December 31, 2007 4,164,129

Particulars regarding impairment testing on goodwill are disclosed in Note 20.

19. Intangible Assets

Deferred Retailer development Patents and Manufacturing and service costs trademarks know-how relationship Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Group Cost At January 1, 2006 278,445 1,261,507 3,510 — 1,543,462 Currency realignment 5,733 2,672 — — 8,405 Additions 192,830 50,016 — — 242,846 Written off in the year — (4,325) — — (4,325)

At December 31, 2006 477,008 1,309,870 3,510 — 1,790,388 Currency realignment 9,395 8,423 5 72 17,895 Additions 205,103 24,896 97 — 230,096 Written off in the year — (6,027) — — (6,027) Acquisition of subsidiaries — 394,466 — 50,627 445,093

At December 31, 2007 691,506 1,731,628 3,612 50,699 2,477,445

Amortisation At January 1, 2006 28,461 51,032 2,516 — 82,009 Currency realignment 1,139 1,967 — — 3,106 Provided for the year 59,815 28,900 702 — 89,417 Eliminated on write off — (4,325) — — (4,325)

At December 31, 2006 89,415 77,574 3,218 — 170,207 Currency realignment 3,505 2,742 1 — 6,248 Provided for the year 99,614 31,017 309 — 130,940 Eliminated on write off — (6,027) — — (6,027)

At December 31, 2007 192,534 105,306 3,528 — 301,368

Carrying Amounts At December 31, 2007 498,972 1,626,322 84 50,699 2,176,077

At December 31, 2006 387,593 1,232,296 292 — 1,620,181

94 Techtronic Industries Co. Ltd. Annual Report 2007 19. Intangible Assets (continued)

Deferred development costs Patents Total HK$’000 HK$’000 HK$’000 The Company Cost At January 1, 2006 102,473 50,304 152,777 Additions 108,009 6,581 114,590

At December 31, 2006 210,482 56,885 267,367 Additions 112,275 — 112,275

At December 31, 2007 322,757 56,885 379,642

Amortisation At January 1, 2006 — 14,198 14,198 Provided for the year 20,495 12,482 32,977

At December 31, 2006 20,495 26,680 47,175 Provided for the year 42,096 12,358 54,454

At December 31, 2007 62,591 39,038 101,629

Carrying Amounts At December 31, 2007 260,166 17,847 278,013

At December 31, 2006 189,987 30,205 220,192

The retailer and service relationship were acquired through business combination during 2007, which related to the relationships with retailers and service centres. They have definite useful lives and are amortised on a straight-line basis over 20 years.

Deferred development costs are internally generated. All the patents and trademarks and manufacturing know-how were acquired from third parties or from business combinations. The above intangible assets, other than trademarks with indefinite useful life of HK$234,000,000 (2006: HK$234,000,000) of the Group, have definite useful lives and are amortised on a straight-line basis over 4 to 20 years.

The trademarks with indefinite useful life of HK$234,000,000 (2006: HK$234,000,000) are considered by the management of the Group as having an indefinite useful life because they are expected to contribute to net cash inflows indefinitely. The trademarks will not be amortised until their useful life is determined to be finite. Instead they will be tested for impairment annually and whenever there is an indication that they may be impaired. Particulars of the impairment testing are disclosed in Note 20.

Techtronic Industries Co. Ltd. Annual Report 2007 95 Notes to the Consolidated Financial Statements

20. Impairment Testing on Goodwill and Intangible Assets with Indefinite Useful Lives The carrying amounts of goodwill and trademarks with indefinite useful lives as at December 31, 2007 allocated to the following cash-generating units (“CGUs”) are as follows:

Goodwill Trademarks HK$’000 HK$’000

Power Equipment 3,540,999 234,000 Floor Care 623,130 —

4,164,129 234,000

During the year ended December 31, 2007, management of the Group determined that there is no impairment of any of its CGUs containing goodwill or trademarks with indefinite useful lives.

The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below:

The recoverable amount of the CGUs are determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period, and discount rate at 7% and 11% (2006: 5% and 12%) and extrapolated using a steady 3% growth rate.

21. Investments in Subsidiaries

The Company 2007 2006 HK$’000 HK$’000

Investments in unlisted shares, at cost 1,182,712 630,546

Particulars of the principal subsidiaries of the Company as at December 31, 2007 are set out in Note 53.

22. Interests in Associates

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Unlisted shares, at cost less impairment loss recognised — — 23,790 23,790 Share of net assets 14,229 14,499 — — Amounts due from associates 189,408 178,490 173,149 160,848

203,637 192,989 196,939 184,638

Particulars of the associates as at December 31, 2007 and December 31, 2006 are set out in Note 54.

The amounts due from associates are unsecured, bear interest at LIBOR plus 2% and are repayable on demand. In the opinion of directors, no part of the amounts will be repaid within the next twelve months and the amounts are therefore presented as non-current assets.

96 Techtronic Industries Co. Ltd. Annual Report 2007 22. Interests in Associates (continued) The summarised financial information in respect of the Group’s associates is set out below:

2007 2006 HK$’000 HK$’000

Total assets 115,747 122,344 Total liabilities (58,832) (64,348)

Net assets 56,915 57,996

Group’s share of net assets of associates 14,229 14,499

Turnover 147,284 234,634

Loss for the year (7,746) (15,005)

Group’s share of result of associates for the year (270) (895)

At the balance sheet date, amongst the associates, the Group held 40.8% of the shares of Gimelli International (Holdings) Limited and its subsidiaries (together “Gimelli Group companies”). The Group has discontinued recognising its share of the losses of the Gimelli Group companies. The unrecognised share of loss for the year and cumulatively are HK$3,601,000 (2006: HK$4,661,000) and HK$39,694,000 (2006: HK$36,093,000) respectively. The carrying value of the Group’s interests in the Gimelli Group companies is nil at both December 31, 2007 and December 31, 2006.

23. Available-for-sale Investments

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Unlisted equity securities and club membership debentures, at cost less impairment loss recognised 17,058 43,315 1,695 1,195

As at December 31, 2007, all available-for-sale investments represent investments in unlisted equity securities and club membership debentures. They are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably.

As at December 31, 2006, available-for-sale investment included 30% equity interest in Baja, Inc., which was incorporated in the USA. The investment was not regarded as an associate, as the Group did not have any significant influence.

Techtronic Industries Co. Ltd. Annual Report 2007 97 Notes to the Consolidated Financial Statements

24. Inventories

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Raw materials 1,458,159 1,175,864 400,181 249,846 Work in progress 248,539 108,834 86,314 29,215 Finished goods 4,244,908 2,735,185 104,257 149,744

5,951,606 4,019,883 590,752 428,805

All inventories are stated at the cost.

25. Trade and Other Receivables

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Trade receivables 4,282,232 3,555,683 50,650 65,475 Less: Allowances for doubtful debts (94,048) (77,586) (20,812) (20,812)

4,188,184 3,478,097 29,838 44,663 Other receivables 283,660 348,941 — —

4,471,844 3,827,038 29,838 44,663

The aged analysis of trade receivables, net of allowances for doubtful debts, at the balance sheet date is as follows:

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

0 to 60 days 3,711,634 3,143,989 29,838 41,553 61 to 120 days 300,597 230,131 — 977 121 days or above 175,953 103,977 — 2,133 Total trade receivables 4,188,184 3,478,097 29,838 44,663

Before accepting any new customer, the Group uses an internal credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed regularly. 80% of the trade receivables that are neither past due nor impaired have the best credit scoring attributable under the internal credit scoring system used by the Group.

Included in the Group’s trade receivable balance are debtors with a carrying amount of HK$175,953,000 (2006: HK$103,977,000) which are past due at the reporting date for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances. The average age of these receivables is 291 days (2006: 282 days).

98 Techtronic Industries Co. Ltd. Annual Report 2007 25. Trade and Other Receivables (continued) The Group has a policy of allowing credit periods ranging from 60 days to 120 days. Trade receivables that were past due but not provided for impairment loss are related to a number of independent customers that have a good track record with the Group. The management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

Ageing of trade receivables which are past due but not impaired.

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

121–365 days 155,153 92,544 — 2,133 1–2 years 13,508 8,451 — — Over 2 years 7,292 2,982 — —

Total 175,953 103,977 — 2,133

Movement in the allowance for doubtful debts

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Balance at beginning of the year 77,586 91,727 20,812 26,943 Currency realignment 2,538 — — — Impairment losses recognised on receivables 21,960 8,038 — 3,196 Amounts written off as uncollectable (885) (7,287) — (9,327) Amounts recovered during the year (7,151) (14,892) — —

Balance at end of the year 94,048 77,586 20,812 20,812

Included in the allowance for doubtful debts are individually impaired trade receivables with a balance of HK$94,048,000 (2006: HK$77,586,000) which have the worst credit scoring attributable under the internal credit scoring system used by the Group. The impairment recognised represents the difference between the carrying amount and recoverable amount of these trade receivables. The Group does not hold any collateral over these balances.

Ageing of impaired trade receivables

2007 2006 HK$’000 HK$’000 0–120 days 51,428 46,725 121–365 days 20,762 16,160 1–2 years 10,049 3,365 Over 2 Years 11,809 11,336 Total 94,048 77,586

Techtronic Industries Co. Ltd. Annual Report 2007 99 Notes to the Consolidated Financial Statements

26. Bills Receivable The fair value of the Group’s and the Company’s bills receivable at December 31, 2007 approximates the corresponding carrying amount.

All the Group’s and Company’s bills receivable at December 31, 2007 is due within 120 days.

27. Amounts Due from (to) Subsidiaries The fair value of the Company’s amounts due from (to) subsidiaries at December 31, 2007 approximates the corresponding carrying amount.

The amounts are unsecured, interest-free and payable on demand.

28. Trade Receivables from Associates The fair value of the Group’s trade receivables from associates at December 31, 2007 approximates the corresponding carrying amount. All the Group’s trade receivables from associates at December 31, 2007 are due within 120 days.

29. Held-for-Trading Investments The Group’s held-for-trading investments at December 31, 2007 are carried at fair value.

30. Bank Balances, Deposits and Cash/Bank Overdrafts Bank balances carry interest at market rates which range from 2.07% to 5.70%. Bank overdrafts carry interest at market rates which range from 6.75% to 8.25%.

31. Trade and Other Payables The aged analysis of trade payables is as follows:

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

0 to 60 days 1,947,377 1,345,473 355,507 403,583 61 to 120 days 370,703 91,696 263,062 36,838 121 days or above 43,254 30,547 9,222 2,947

Total trade payables 2,361,334 1,467,716 627,791 443,368 Other payables 2,105,073 1,650,404 199,075 196,016

4,466,407 3,118,120 826,866 639,384

The fair value of the Group’s and the Company’s trade and other payables at December 31, 2007 approximates the corresponding carrying amount.

100 Techtronic Industries Co. Ltd. Annual Report 2007 32. Bills Payable The fair value of the Group’s and the Company’s bills payable at December 31, 2007 approximates the corresponding carrying amount.

All the Group’s and Company’s bills payable at December 31, 2007 and December 31, 2006 are due within 120 days.

33. Warranty Provision

2007 HK$’000

At January 1, 2007 369,638 Currency realignment 7,761 Additional provision in the year 427,593 Acquisition of subsidiaries 119,626 Utilisation of provision (450,232)

At December 31, 2007 474,386

The warranty provision represents management’s best estimate of the Group’s outstanding liabilities on products sold. It is expected that the majority of this expenditure will be incurred in the next financial year.

34. Trade Payable to An Associate The fair value of the Group’s and the Company’s trade payable to an associate at December 31, 2007 approximates the corresponding carrying amount.

Techtronic Industries Co. Ltd. Annual Report 2007 101 Notes to the Consolidated Financial Statements

35. Restructuring Provision

2007 HK$’000

At January 1, 2007 — Currency realignment 586 Charge for the year 668,481 Utilisation of provision (250,687)

At December 31, 2007 418,380

The balance of the provision is expected to be utilised in 2008.

Over the past five years, the Group has grown substantially and aggressively, both organically and through acquisitions. In order to fully exploit the synergies and growth opportunities offered by acquisitions and business scale, the Board of Directors has approved a series of strategic repositioning initiatives designed to significantly boost future performance. These will include: a re-deployment of global manufacturing and product development capabilities; expanding highly recognised brands and product categories in markets where they are under-represented; and a reorganisation of structures and resources around newly created business units for more efficient management of brands, products, and investments.

The Group started to implement this plan during the year. The relevant restructuring charges which the Group incurred were charged as operating expenses during the year. This restructuring expense will continue to be charged to income statement up until the end of 2008.

The management of the Group expects that after the completion of the strategic repositioning plan, there will be substantial savings in 2009 and afterwards.

Other restructuring and transition costs mainly represents relocation and related expenses for property, plant and equipments of relevant plants.

102 Techtronic Industries Co. Ltd. Annual Report 2007 36. Obligations Under Finance Leases It is the Group’s policy to lease certain of its plant and machinery, fixtures and equipment under finance leases, with lease terms ranging from 3 years to 20 years. Interest rates underlying all obligations under finance leases are fixed at the respective contract dates. No arrangements have been entered into for contingent rental payments.

The maturity of obligations under finance leases is as follows:

The Group The Company Present value of Present value of Minimum lease payments minimum lease payments Minimum lease payments minimum lease payments 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Amounts payable under finance leases: Within one year 19,457 20,453 17,635 18,535 955 — 827 — In more than one year but not more than two years 20,549 16,585 17,727 13,614 955 — 865 — In more than two years but not more than three years 16,446 14,116 13,777 11,309 955 — 904 — In more than three years but not more than four years 15,819 13,701 13,283 10,989 746 — 732 — In more than four years but not more than five years 14,821 13,682 12,386 11,063 — — — — More than five years 141,226 127,567 77,520 78,554 — — — —

228,318 206,104 152,328 144,064 3,611 — 3,328 — Less: future finance charges (75,990) (62,040) — — (282) — — —

Present value of lease obligations 152,328 144,064 152,328 144,064 3,329 — 3,328 —

Less: Amount due within one year shown under current liabilities (17,635) (18,535) (827) —

Amount due after one year 134,693 125,529 2,501 —

The Group’s obligation under finance lease that are denominated in currencies other than the functional currencies are HK$129,404,000 (2006: HK$119,127,000).

The fair value of the Group’s and the Company’s finance lease obligations, determined based on the present value of the estimated future cash flow discounted using the prevailing market rate at December 31, 2007, approximates their carrying amount.

37. Discounted Bills with Recourse Bills discounted with a bank at an effective interest rate of 5.95% per annum (2006: 5.88% per annum) have a maturity profile of less than 120 days.

Techtronic Industries Co. Ltd. Annual Report 2007 103 Notes to the Consolidated Financial Statements

38. Convertible Bonds In July, 2004, the Group issued a 5-year zero coupon convertible bonds at par, due in July, 2009 (the “Bonds”), for an aggregate principal amount of US$140,000,000 (approximately HK$1,092,000,000). The Bonds are convertible, at the option of bondholders, into ordinary shares of HK$0.10 each of the Company at an initial conversion price of US$2.1247 per share, subject to anti-dilutive adjustment, at any time from August 7, 2006 to July 1, 2009. Unless previously redeemed, converted or purchased and cancelled, the Company will redeem the Bonds at 107.76% of the principal amount on the maturity date of July 8, 2009.

The Bonds contain two components, a liability and an equity element. The equity element is presented in equity as “Convertible bonds equity reserve”. The effective interest rate of the liability component is 2.11%.

On July 8, 2007, the bondholders early redeemed part of the Bonds with a principal amount of US$127,850,000 (approximately HK$997,230,000) at 104.59%. The early redemption gave rise to a debt extinguishment gain of HK$28,837,000 (Note 9).

The movement of the liability component of the Bonds for the year is set out below:

The Group and The Company 2007 2006 HK$’000 HK$’000

Liability component at the beginning of the year 1,105,834 1,078,307 Effective interest expense 14,385 27,527 Repayment (1,021,920) —

Liability component at the end of the year 98,299 1,105,834

The fair value of the liability component of the Bonds at December 31, 2007, determined based on the present value of the estimated future cash outflows discounted at the prevailing market rate at the balance sheet date, was approximately HK$96,151,000 (2006: HK$885,158,000).

39. Capital Risk Management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior years.

The capital structure of the Group consists of net debt (which includes borrowings, discounted bills with recourse, convertible bonds and obligations under finance leases), net of cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued share capital, reserves and retained profits.

104 Techtronic Industries Co. Ltd. Annual Report 2007 39. Capital Risk Management (continued) Gearing Ratio The Group’s management reviews the capital structure on a semi-annual basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital. The Group has a target gearing ratio of 35% determined as the proportion of net debt to equity. Based on the management’s recommendations, the Group expects to decrease its gearing ratio comparable to that of 2006 level by next 18 months through the continued generating of cash inflows by growth of the business.

The gearing ratio at the year end was as follows:

2007 2006 HK$’000 HK$’000

Debt (i) 10,512,423 8,905,980 Cash and cash equivalents (3,293,327) (3,718,798)

Net debt 7,219,096 5,187,182 Equity (ii) 6,920,125 6,996,530 Net debt to equity ratio 104.32% 74.14%

(i) Debt comprises bank overdrafts, obligations under finance leases, discounted bills with recourse, convertible bonds and unsecured borrowings as detailed in Notes 30, 36, 37, 38 and 41 respectively.

(ii) Equity includes all capital and reserves of the Group.

In addition, based on the management recommendations, the Group will balance its overall capital structure through the payment of dividend, new share issues and share repurchase as well as the issue of new debt or the redemption of existing debt.

Techtronic Industries Co. Ltd. Annual Report 2007 105 Notes to the Consolidated Financial Statements

40. Financial Instruments 40.1 Categories of Financial Instruments

2007 2006 HK$’000 HK$’000

The Group Financial assets Fair value through profit or loss Held-for-trading investments 17,192 7,800

Available-for-sale investments 17,058 43,315

Loans and receivables (including cash and cash equivalents) Trade and other receivables 4,471,844 3,827,038 Bills receivable 469,002 578,560 Trade receivables from associates 10,053 8,554 Bank balances, deposits and cash 3,293,327 3,718,798 Amounts due from associates 189,408 178,490 8,433,634 8,311,440

Financial liabilities Other financial liabilities Trade and other payables 4,466,407 3,118,120 Bills payable 299,223 335,455 Obligation under finance leases 152,328 144,064 Discounted bills with recourse 3,036,449 2,501,155 Unsecured borrowings 6,806,978 4,886,202 Bank overdrafts 418,369 268,725 Convertible bonds 98,299 1,105,834

15,278,053 12,359,555

The Company Financial assets Available-for-sale investments 1,695 1,195

Loans and receivables (including cash and cash equivalents) Trade and other receivables 29,838 44,663 Bills receivable 214,926 349,825 Bank balances, deposits and cash 580,400 1,347,008 Amounts due from assoicates 173,149 160,848 Amounts due from subsidiaries 7,917,745 5,969,107

8,916,058 7,871,451 Financial liabilities Other financial liabilities Trade and other payables 826,866 639,384 Bills payable 283,013 312,553 Amounts due to subsidiaries 70,646 17,934 Obligation under finance leases 3,328 — Discounted bills with recourse 2,327,957 1,859,874 Unsecured borrowings 1,910,951 272,223 Convertible bonds 98,299 1,105,834

5,521,060 4,207,802

106 Techtronic Industries Co. Ltd. Annual Report 2007 40. Financial Instruments (continued) 40.2 Financial Risk Management Objectives and Policies The Group’s Corporate Treasury function provides risk management advice to the business units, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These financial risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Group seeks to minimise the effects of these risks by using derivative financial instruments or natural hedges to mitigate these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non- derivative financial instruments, and the investment of excess liquidity. Compliance with policies is reviewed by the internal auditors on a continuous basis. The Group does not enter into or trade derivative financial instruments for speculative purposes.

40.2.1 Foreign Currency Risk Management Subsidiaries of the Group have foreign currency sales and purchases, which expose the Group to foreign currency risk. Approximately 24% of the Group’s sales are denominated in currencies other than the functional currency of the group entity making the sale, whilst almost 24% of costs are denominated in the group entity’s respective functional currencies.

The carrying amount of certain significant foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Liabilities Assets 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

The Group Group Foreign Currency EURO 14,973 3,588 1,101,149 726,048

Liabilities Assets 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

The Company Company Foreign Currency EURO 5,338 2,256 1,006,740 620,558

Note: Monetary assets and monetary liabilities denominated in Hong Kong dollars have no material foreign currency risk exposure as Hong Kong dollars is pegged with United States dollars.

Techtronic Industries Co. Ltd. Annual Report 2007 107 Notes to the Consolidated Financial Statements

40. Financial Instruments (continued) 40.2 Financial Risk Management Objectives and Policies (continued) 40.2.1 Foreign Currency Risk Management (continued) Sensitivity analysis The Group and the Company is mainly exposed to the effects of fluctuation in Euro.

The following table details the Group’s sensitivity to a 5% increase and decrease in the United States dollar against EURO. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes outstanding foreign currency denominated monetary items. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group and the Company where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit for the year where the United States dollar strengthens 5% against EURO. For a 5% weakening of the United States dollar against EURO, there would be an equal and opposite impact on the profit, and the balances below would be negative.

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Impact of EURO Profit for the year (i) (54,310) (36,123) (50,070) (30,915)

(i) This is mainly attributable to the exposure outstanding on receivables and payables denominated in EURO at the year end.

40.2.2 Interest Rate Risk Management The Group’s and the Company’s cash flow interest rate risk relates primarily to variable-rate borrowings

The Group’s and the Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s and the Company’s cash flow interest rate risk is mainly concentrated on the fluctuation of HIBOR arising from the Group’s and the Company’s Hong Kong dollar denominated borrowings.

Sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for variable rate bank borrowings, bank overdrafts and discounted bills with recourse at the balance sheet date. For variable-rate borrowings, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease in HIBOR is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended December 31, 2007 would decrease/increase by HK$30,244,000 (2006: decrease/increase by HK$17,285,000). The Company’s profit for the year ended December 31, 2007 would decrease/increase by HK$21,195,000 (2006: decrease/increase by HK$10,660,000). This is mainly attributable to the Group’s and the Company’s exposure to interest rates on its variable rate borrowings.

The Group’s and the Company’s sensitivity to interest rates has increased during the current period mainly due to the increase in variable rate debt instruments.

108 Techtronic Industries Co. Ltd. Annual Report 2007 40. Financial Instruments (continued) 40.2 Financial Risk Management Objectives and Policies (continued) 40.2.2 Interest Rate Risk Management (continued) Sensitivity analysis (continued) Credit risk As at 31 December 2007, the Group’s and the Company’s maximum exposure to credit risk which will cause a financial loss to the Group and the Company due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Group and the Company is arising from:

• the carrying amount of the respective recognised financial assets as stated in the consolidated balance sheet; and

• the amount of contingent liabilities in relation to financial guarantee issued by the Group and the Company as disclosed in Note 49.

In order to minimise the credit risk, the management has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt and debt investments at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s and the Company’s credit risk is significantly reduced.

40.2.3 Liquidity Risk Management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

As at December 31, 2007, the Group has available unutilised overdrafts and short and medium term bank loan facilities of approximately HK$479 million (2006: HK$305 million) and HK$637 million (2006: HK$1,818 million) respectively.

Techtronic Industries Co. Ltd. Annual Report 2007 109 Notes to the Consolidated Financial Statements

40. Financial Instruments (continued) 40.2 Financial Risk Management Objectives and Policies (continued) 40.2.3 Liquidity Risk Management (continued) Liquidity tables The following tables detail the Group’s remaining contractual maturity for its financial liabilities as well as derivative and certain non-derivative financial assets which are included in the maturity analysis. For non-derivative financial assets, the tables have been drawn up based on the contractual maturities of the carrying amounts of the financial assets. For non-derivative financial liabilities, the tables reflect the carrying amounts of financial liabilities based on the earliest date on which the Group can be required to pay.

Total Weighted Carrying Average amounts at Effective Less than 3 months December 31, Interest Rate 1 month 1–3 months to 1 year 1–2 years 2+ years 2007 % HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Group 2007 Non-derivative financial assets Held-for-trading investments — 17,192 — — — — 17,192 Available-for-sale investments — 17,058 — — — — 17,058 Trade and other receivables — 2,752,275 1,342,935 376,634 — — 4,471,844 Bills receivable — 272,128 181,324 15,550 — — 469,002 Trade receivables from associates — 10,053 — — — — 10,053 Bank balances, deposits and cash 2.07%–5.70% 3,233,333 59,994———3,293,327 Amount due from associates 7.22% — — — — 189,408 189,408

6,302,039 1,584,253 392,184 — 189,408 8,467,884

Non-derivative financial liabilities Trade and other payables — (3,720,549) (629,804) (116,054) — — (4,466,407) Bills payable — (166,922) (131,194) (1,107) — — (299,223) Obligation under finance leases 11.94% (1,469) (2,939) (13,227) (17,727) (116,966) (152,328) Discounted bills with recourse 5.95% (963,328) (2,006,534) (66,587) — — (3,036,449) Unsecured borrowings 3.53%–6.73% — — (2,566,503) (13,835) (4,226,640) (6,806,978) Bank overdrafts 6.75%–8.25% (418,369) — — — — (418,369) Convertible bonds 2.11% — — — (98,299) — (98,299)

(5,270,637) (2,770,471) (2,763,478) (129,861) (4,343,606) (15,278,053)

110 Techtronic Industries Co. Ltd. Annual Report 2007 40. Financial Instruments (continued) 40.2 Financial Risk Management Objectives and Policies (continued) 40.2.3 Liquidity Risk Management (continued) Liquidity tables (continued)

Total Weighted Carrying Average amounts at Effective Less than 3 months December 31, Interest rate 1 month 1–3 months to 1 year 1–2 years 2+ years 2006 % HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

2006 Non-derivative financial assets Held-for-trading investments — 7,800————7,800 Available-for-sale investments — 43,315 — — — — 43,315 Trade and other receivables — 3,602,560 187,050 37,428 — — 3,827,038 Bills receivable — 360,808 204,151 13,601 — — 578,560 Trade receivables from associates — 8,554————8,554 Bank balances, deposits and cash 1.75%–5.15% 3,691,113 27,685 — — — 3,718,798 Amounts due from assoicates 7.13% — — — — 178,490 178,490

7,714,150 418,886 51,029 — 178,490 8,362,555

Non-derivative financial liabilities Trade and other payables — (2,699,372) (401,948) (16,800) — — (3,118,120) Bills payable — (180,485) (154,110) (860) — — (335,455) Obligation under finance leases 10.88% (1,545) (3,089) (13,902) (13,614) (111,914) (144,064) Discounted bills with recourse 5.88% (379,949) (1,894,381) (226,825) — — (2,501,155) Unsecured borrowings 4.09%–6.77% — — (421,849) (240,672) (4,223,681) (4,886,202) Bank overdrafts 4.58%–6.19% — (268,725) — — — (268,725) Convertible bonds 2.11% — — — — (1,105,834) (1,105,834)

(3,261,351) (2,722,253) (680,236) (254,286) (5,441,429) (12,359,555)

Techtronic Industries Co. Ltd. Annual Report 2007 111 Notes to the Consolidated Financial Statements

40. Financial Instruments (continued) 40.2 Financial Risk Management Objectives and Policies (continued) 40.2.3 Liquidity Risk Management (continued) Liquidity tables (continued)

Weighted Total Average Carrying Effective Less than 3 months amount at Interest Rate 1 month 1–3 months to 1 year 1–2 years 2+ years Year end date % HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Company 2007 Non-derivative financial assets Available-for-sale investments — 1,695 — — — — 1,695 Trade and other receivables — 25,189 4,649 — — — 29,838 Bills receivable — 88,063 126,863 — — — 214,926 Bank balances, deposits and cash 2.07%–5.70% 580,400 — — — — 580,400 Amounts due from associates 7.22% — — — — 173,149 173,149 Amounts due from subsidiaries — 7,917,745 — — — — 7,917,745

8,613,092 131,512 — — 173,149 8,917,753

Non-derivative financial liabilities Trade and other payables — (592,865) (234,001) — — — (826,866) Bills payable — (160,557) (122,456) — — — (283,013) Amounts due to subsidiaries — (70,646) — — — — (70,646) Obligation under finance leases 3.81% (69) (138) (620) (865) (1,636) (3,328) Discounted bills with recourse 5.95% (663,934) (1,664,023) — — — (2,327,957) Unsecured borrowings 3.53%–6.73% — — (1,910,951) — — (1,910,951) Convertible bonds 2.11% — — — (98,299) — (98,299)

(1,488,071) (2,020,618) (1,911,571) (99,164) (1,636) (5,521,060)

2006 Non-derivative financial assets Available-for-sale investments — 1,195 — — — — 1,195 Trade and other receivables — 24,732 19,931 — — — 44,663 Bills receivable — 187,394 162,431 — — — 349,825 Bank balances, deposits and cash 1.75%–5.15% 1,347,008 — — — — 1,347,008 Amounts due from associates 7.13% — — — — 160,848 160,848 Amounts due from subsidiaries — 5,969,107 — — — — 5,969,107

7,529,436 182,362 — — 160,848 7,872,646

Non-derivative financial liabilities Trade and other payables — (445,919) (193,465) — — — (639,384) Bills payable — (164,470) (148,083) — — — (312,553) Amounts due to subsidiaries — (17,934) — — — — (17,934) Discounted bills with recourse 5.88% (233,048) (1,623,469) (3,357) — — (1,859,874) Unsecured borrowings 4.09%–6.77% — — (38,889) (233,334) — (272,223) Convertible bonds 2.11% — — — — (1,105,834) (1,105,834)

(861,371) (1,965,017) (42,246) (233,334) (1,105,834) (4,207,802)

112 Techtronic Industries Co. Ltd. Annual Report 2007 40. Financial Instruments (continued) 40.3 Fair Value The fair value of financial assets and financial liabilities are determined as follows:

• the fair value of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices;

• the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions. For an option-based derivative, the fair value is estimated using an option pricing model (for example, the binomial model).

41. Unsecured Borrowings

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Trust receipt loans 48,355 152,416 — — Bank loans 4,105,693 2,094,643 1,910,951 272,223

Bank borrowings 4,154,048 2,247,059 1,910,951 272,223 Fixed interest rate notes (Note) 2,652,930 2,639,143 — —

Total borrowings 6,806,978 4,886,202 1,910,951 272,223

The borrowings of the Group and the Company are repayable as follows:

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Fixed rate In more than two years but not more than five years 1,560,000 1,560,000 — — More than five years 2,652,930 2,639,143 — — Floating rate On demand or within one year 2,566,503 421,849 1,910,951 38,889 In more than one year but not more than two years 13,835 240,672 — 233,334 In more than two years but not more than five years 13,710 24,538 — —

6,806,978 4,886,202 1,910,951 272,223 Less: Amount due within one year shown under current liabilities (2,566,503) (421,849) (1,910,951) (38,889)

Amount due after one year 4,240,475 4,464,353 — 233,334

Techtronic Industries Co. Ltd. Annual Report 2007 113 Notes to the Consolidated Financial Statements

41. Unsecured Borrowings (continued) The ranges of effective interest rates (which are also equal to contracted interest rates) on the Group’s borrowings are as follows:

2007 2006

Effective interest rate: Fixed-rate borrowings 4.09% to 5.44% 4.09% to 5.44% Variable-rate borrowings 3.53% to 6.73% 4.49% to 6.77%

The Group’s borrowings that are denominated in currencies other than the functional currencies of the relevant group entities are set out below:

HK$ RMB AU$ NZ$ EURO ’000 ’000 ’000 ’000 ’000

As at December 31, 2007 3,568,817 29,218 4,000 3,500 6,000 As at December 31, 2006 2,042,955 — 12,178 2,750 5,000

Note: In 2003, the Group issued fixed interest rate notes, through its wholly-owned entity in the USA, for an aggregate principal amount of US$145,000,000. The notes were issued in two fixed rate tranches, being US$120,000,000 for 10 years at 4.0% per annum and US$25,000,000 for 7 years at 4.09% per annum. The proceeds were used to refinance existing medium term debts and for general working capital purposes.

In 2006, the Group issued additional fixed interest rate notes, through its wholly-owned entity in the USA, for an aggregate principal amount of US$200,000,000. The notes were issued in two fixed rate tranches of US$150,000,000 for 10 years at 5.44% per annum and US$50,000,000 for 7 years at 5.17% per annum. The proceeds were used to finance the acquisition of subsidiaries.

The carrying amount of bank borrowings approximates their fair value as the weighted average interest rates approximate the contracted market rates.

42. Share Capital

2007 2006 2007 2006 Number of shares HK$’000 HK$’000

Ordinary shares Authorised: Shares of HK$0.10 each 2,400,000,000 2,400,000,000 240,000 240,000

Issued and fully paid: Shares of HK$0.10 each at January 1 1,465,223,652 1,461,720,652 146,522 146,172 Repurchase of shares (4,358,500) — (436) — Issued on exercise of share options 40,387,000 3,503,000 4,039 350

Shares of HK$0.10 each at December 31 1,501,252,152 1,465,223,652 150,125 146,522

Details of the share options are set out in Note 50.

114 Techtronic Industries Co. Ltd. Annual Report 2007 42. Share Capital (continued) During the year, the Company repurchased its own shares through the Stock Exchange of Hong Kong Company Limited as follows:

No. of ordinary shares at Aggregate HK$0.10 Price per shares consideration each Highest Lowest paid Month of repurchase HK$ HK$ HK$ September 2007 2,340,000 9.25 8.65 21,155,589 October 2007 300,000 8.22 8.22 2,477,003 November 2007 1,718,500 6.95 6.48 11,541,957

The repurchased shares were cancelled and accordingly the issued share capital of the Company was reduced by the nominal value of these shares. An amount equivalent to the par value of the shares cancelled of HK$436,000 was transferred to the capital redemption reserve. Premium paid on the repurchase of the shares of approximately HK$35,175,000 was charged to retained profits.

Techtronic Industries Co. Ltd. Annual Report 2007 115 Notes to the Consolidated Financial Statements

43. Reserves

Employee Capital Convertible share-based Share redemption bonds equity compensation Retained premium reserve reserve reserve profits Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Company At January 1, 2006 2,732,809 — 26,334 6,703 2,291,954 5,057,800 Premium on shares issued 22,040 ————22,040 Recognition of equity-settled share based payment — — — 7,091 — 7,091 Profit for the year — — — — 584,849 584,849 Final dividend — 2005 — — — — (184,609) (184,609) Interim dividend — 2006 — — — — (95,236) (95,236)

At January 1, 2007 2,754,849 — 26,334 13,794 2,596,958 5,391,935 Premium on shares issued 143,797 ————143,797 Repurchase of shares — 436 — — (35,175) (34,739) Effect of early redemption of convertible bonds — — (49,920) — — (49,920) Release of deferred tax liabilities on early redemption of convertible bonds — — 5,101 — — 5,101 Transfer to retained earnings upon early redemption of convertible bonds — — 20,770 — (20,770) — Recognition of equity-settled share based payment — — — 16,155 — 16,155 Share options lapsed — — — (2,152) 2,152 — Profit for the year — — — — 593,795 593,795 Final dividend — 2006 — — — — (189,636) (189,636) Interim dividend — 2007 — — — — (97,865) (97,865)

At December 31, 2007 2,898,646 436 2,285 27,797 2,849,459 5,778,623

As at December 31, 2007, the Company’s reserves available for distribution to shareholders comprised the retained profits of HK$2,849,459,000 (2006: HK$2,596,958,000).

116 Techtronic Industries Co. Ltd. Annual Report 2007 44. Retirement Benefits Obligations

2007 2006 HK$’000 HK$’000

Pension plan obligations (Note i) 688,271 672,117 Post-retirement, medical and dental plan obligations (Note ii) 143,018 146,965 Post-employment benefit plan obligations (Note iii) 134,281 — Others 14,958 15,005

980,528 834,087

The Company and its subsidiaries operating in Hong Kong have participated in the Mandatory Provident Fund Schemes (“MPF Schemes”) registered under the Mandatory Provident Fund Ordinance since December, 2000.

The Group’s overseas subsidiaries operate a number of defined contribution schemes and defined benefit schemes which cover substantially all of their employees. Contributions to the defined contribution schemes applicable to each year are made at a certain percentage of the employees’ payroll.

Note i: Pension plan obligations

The pension plan obligations are provided in the German operations and includes a plan that pays retirement benefits on service and final pay. Under the plan, the employees are entitled to retirement benefits varying between 10 and 20 per cent of final salary on attainment of a retirement age of 65. The most recent actuarial valuations of the present value of the defined benefit obligation were carried out on November 28, 2007 by BDO Deutsche Warentreuhand Aktiengesellschaft, Germany.

Note ii: Post-retirement, medical and dental plan obligations

Milwaukee Electric Tool Corporation, a subsidiary of the Group in the USA, operates unfunded post-retirement, medical benefits, dental and life insurance plans. The most recent actuarial valuations of the present value of the obligations were carried out on February 7, 2008 by Mercer Human Resource Consulting.

Note iii: Post-employment plan obligations

The pension plan obligations are provided for members of IBEW (International Brotherhood of Electrical Workers) Local 1985 employed by Hoover. The most recent actuarial valuation of the present value of the obligations were carried out on December 10, 2007 by CBIZ.

The main actuarial assumptions used were as follows:

Post-retirement Post medical and employment Pension plan dental plan benefit plan 2007 2007 2007 Discount rate 5.25% 5.80% 6.00% Expected rate of salary increases 2.00% N/A N/A Future pension increases 2.00% N/A N/A Medical cost inflation (ultimate) N/A 5.00% N/A

Techtronic Industries Co. Ltd. Annual Report 2007 117 Notes to the Consolidated Financial Statements

44. Retirement Benefits Obligations (continued) Amounts recognised in profit or loss in respect of the plans are as follows:

Post Post-retirement medical and employment Pension plan dental plan benefit plan 2007 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Current service cost (gain) 7,447 (2,952) 3,956 4,389 8,581 Actuarial gain (63,002) — (1,258) (1,619) — Interest cost 28,657 14,591 6,636 6,693 17,613

(26,898) 11,639 9,334 9,463 26,194

The charge for the year has been included in staff costs.

The amount included in the balance sheet arising from the Group’s obligation in respect of the plans is as follows:

Post Post-retirement medical and employment Pension plan dental plan benefit plan 2007 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Present value of unfunded obligations 688,271 672,117 143,019 146,965 134,281

118 Techtronic Industries Co. Ltd. Annual Report 2007 44. Retirement Benefits Obligations (continued) Movements in the present value of the defined benefit obligations in the current year were as follows:

Post-retirement Post medical and employment Pension plan dental plan benefit plan 2007 2007 2007 HK$’000 HK$’000 HK$’000

At January 1 672,117 146,965 — Net liabilities acquired on acquisition of subsidiaries — — 108,146 Exchange differences 77,122 410 (59) Current service cost 7,447 3,956 8,581 Actuarial gain (63,002) (1,258) — Interest cost 28,657 6,636 17,613 Benefits paid (34,070) (13,690) —

At December 31 688,271 143,019 134,281

One World Technologies, Inc., a subsidiary of the Group in the USA operates another defined benefit scheme. The pension costs of this defined benefit scheme are assessed in accordance with an actuarial valuation as at January 1, 2008 performed by Aon Consulting, an employee benefits consulting group, using the Projected Unit Credit method. No medical trend rate assumption is necessary as at December 31, 2007 and 2006 since all retirees are assumed to be affected by the fixed dollar subsidy and a discount rate of 5.8% (2006: 5.8%) was assumed for calculating the actuarial valuation.

There are no assets set aside for these benefits and the plan is funded on a pay-as-you-go basis. The accrued benefit costs under this scheme are to be reimbursed by a former shareholder of the overseas subsidiary in accordance with an assignment assumption, reimbursement and indemnification agreement. As such, the overseas subsidiary has set up a receivable and an accrued benefit cost of the same amount of approximately HK$21,455,000 (2006: HK$22,000,000) as at December 31, 2007.

Techtronic Industries Co. Ltd. Annual Report 2007 119 Notes to the Consolidated Financial Statements

45. Deferred Tax Assets (Liabilities) The following are the major deferred tax assets and liabilities recognised and movements thereon during the current and prior year:

Accelerated Convertible Employee tax Warranty bonds equity related depreciation provision reserve provision Tax losses Others Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

The Group At January 1, 2006 (103,202) 95,524 (5,586) 155,623 199,127 (209,939) 131,547 Currency realignment (2,536) (823) — 10,860 14,005 (1,743) 19,763 Transfer (reclassification) — (5,205) — — 5,205 — — (Charge) credit to income for the year 24,315 12,038 — (9,885) (22,774) 53,023 56,717

At January 1, 2007 (81,423) 101,534 (5,586) 156,598 195,563 (158,659) 208,027 Currency realignment (1,193) 566 — 9,109 9,737 2,039 20,258 Credit to equity — — 5,101 — — — 5,101 Transfer (reclassification) (530) 5,205 — 20 — (4,695) — Acquisition of subsidiaries (250,171) 225,872 — — 2,642 (6,082) (27,739) (Charge) credit to income for the year 283,940 (237,373) — (49,067) (11,385) 50,543 36,658

At December 31, 2007 (49,377) 95,804 (485) 116,660 196,557 (116,854) 242,305

Accelerated Convertible tax bonds depreciation equity reserve Total HK$’000 HK$’000 HK$’000

The Company At January 1, 2006 (14,748) (5,586) (20,334) Credit to income for the year 4,840 — 4,840

At January 1, 2007 (9,908) (5,586) (15,494) Credit to equity — 5,101 5,101 Credit to income for the year 275 — 275

At December 31, 2007 (9,633) (485) (10,118)

Note: Included in others are being deferred tax impact on restructuring provision and other temporary differences.

120 Techtronic Industries Co. Ltd. Annual Report 2007 45. Deferred Tax Assets (Liabilities) (continued) For the purpose of balance sheet presentation, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 Deferred tax assets 762,907 706,493 — — Deferred tax liabilities (520,602) (498,466) (10,118) (15,494)

242,305 208,027 (10,118) (15,494)

At the balance sheet date, the Group has unused tax losses of HK$1,268 million (2006: HK$1,156 million) available for the offset against future profits that may be carried forward indefinitely. No deferred tax asset has been recognised in respect of the tax losses of HK$76 million (2006: HK$38 million) due to the unpredictability of future profit streams.

The utilisation of the deferred tax assets of certain subsidiaries amounting to HK$43,602,000 is dependent on future taxable profits in excess of the profit arising from the reversal of existing taxable temporary differences, and the abovesaid subsidiaries have suffered a loss in either the current or proceeding period in the tax jurisdiction to which the deferred tax asset relates.

46. Acquisition of Subsidiaries The Company purchased all of the Hoover Floor Care business from certain subsidiaries of Whirlpool Corporation. The total consideration for the purchase of Hoover assets and two operating subsidiaries consisted of the payment of HK$831 million in cash to Maytag Corporation (on behalf of itself and the other sellers). The direct transaction costs were approximately HK$73 million. Total costs of acquisition therefore amounted to HK$904 million. The transaction was completed on January 31, 2007 and was fully settled at the closing of the transaction by internal resources.

Techtronic Industries Co. Ltd. Annual Report 2007 121 Notes to the Consolidated Financial Statements

46. Acquisition of Subsidiaries (continued)

Hoover Others Total Fair value Fair value Fair value HK$’000 HK$’000 HK$’000

Net Assets Acquired Property, plant and equipment 553,636 9,702 563,338 Lease prepayments 2,068 — 2,068 Intangible assets 327,881 117,212 445,093 Available-for-sale investments — 650 650 Deferred tax assets 225,746 2,640 228,386 Inventories 550,778 29,865 580,643 Trade and other receivables, deposits and prepayments 541,739 89,052 630,791 Bank balances and cash 250 2,860 3,110 Trade and other payables (795,417) (133,858) (929,275) Warranty provision (104,141) (15,485) (119,626) Obligations under finance leases — (2,100) (2,100) Bank borrowings — (75,208) (75,208) Bank overdrafts — (4,368) (4,368) Deferred tax liabilities (250,174) (5,951) (256,125) Retirement benefits obligations (108,146) — (108,146)

944,220 15,011 959,231 Minority interests — (4,880) (4,880) Discount on acquisition taken to income (39,870) (9,470) (49,340) Goodwill arising on acquisition of subsidiaries — 94,231 94,231 Reclassified from available-for-sale investments — (27,757) (27,757) Reclassified from trade and other receivables — (49,239) (49,239)

Cash consideration paid during the year 904,350 17,896 922,246

Net cash outflow arising on acquisition: Cash consideration paid during the year 904,350 17,896 922,246 Bank balances and cash acquired (250) (2,860) (3,110) Bank overdrafts acquired — 4,368 4,368

Net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries 904,100 19,404 923,504

Others above mainly referred to the acquisitions of 60% equity interest in Startel Tools and Electronics Company (Pty) Ltd and 75% equity interest in Baja, Inc., which were acquired in October 2007 and November 2007 respectively.

The goodwill arising on the acquisition of the subsidiaries is attributable to the anticipated profitability of the distribution of the Group’s products in the new markets and the anticipated future operating synergies from the combination.

The subsidiaries acquired contributed approximately HK$3,050,867,000 to the Group’s turnover, and approximately HK$502,246,000 loss to the Group’s profit before taxation and interest for the period between the date of acquisition and the balance sheet date as at December 31, 2007.

122 Techtronic Industries Co. Ltd. Annual Report 2007 46. Acquisition of Subsidiaries (continued) At the acquisition date, the Group could not ascertain the carrying amount of the acquiree’s assets and liabilities as it was impracticable to obtain various values in various acquiree’s operations.

47. Major Non-Cash Transactions During the year, the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the finance leases of HK$3,714,000 (2006: HK$1,418,000).

48. Lease Commitments At the balance sheet date, the Group and the Company had outstanding commitments under non-cancellable operating leases, which would fall due as follows:

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Within one year 235,599 174,848 12,167 15,786 In the second to fifth year inclusive 428,829 337,931 4,582 9,855 After five years 193,491 132,132 17,510 16,094

857,919 644,911 34,259 41,735

Operating lease payments represent rentals payable by the Group and the Company for certain of its plant and machinery, motor vehicles, office properties and other assets. Leases are negotiated for a term ranging from 1 year to 10 years.

49. Contingent Liabilities

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Guarantees given to banks in respect of credit facilities utilised by associates 30,865 36,026 30,865 36,026

In addition, the Company has given guarantees to banks and independent third parties in respect of general facilities granted to its subsidiaries. The extent of such facilities utilised by the subsidiaries as at December 31, 2007 amounted to HK$5,623,697,000 (2006: HK$5,546,886,000).

Techtronic Industries Co. Ltd. Annual Report 2007 123 Notes to the Consolidated Financial Statements

50. Share Options Scheme adopted on May 25, 2001 and terminated on March 28, 2002 (“Scheme B”) In accordance with the Company’s share option scheme adopted pursuant to a resolution passed on May 25, 2001, the Board of Directors of the Company may grant share options to eligible persons, including full-time officers, Executive Directors and full-time employees of the Company and its subsidiaries, to subscribe for shares in the Company. The purpose of the scheme is to provide incentives or rewards to directors and eligible persons.

Share options granted must be taken up within 21 days of the date of grant, upon payment of HK$1.00 in cash by way of consideration for the grant thereof. Share options may be exercised at any time, subject to vesting condition, from the date which the offer of share options is accepted to the fifth anniversary thereof. The subscription price is set at not less than the higher of the nominal value of the shares and 80.00% of the average of the closing prices of the shares on the Stock Exchange on the five trading days immediately preceding the date of offer of the share option.

The maximum number of shares in respect of which share options may be granted under Scheme B is not permitted to exceed 10.00% of the issued share capital of the Company from time to time. No employee shall be granted an option which, if exercised in full, would result in such employee becoming entitled to subscribe for more than 25.00% of the aggregate number of shares for the time being issued and issuable under Scheme B.

Scheme B was terminated on March 28, 2002 pursuant to a resolution passed on that date.

Scheme adopted on March 28, 2002 (“Scheme C”) and terminated on March 27, 2007 Following the termination of Scheme B, a new share option scheme was adopted pursuant to a resolution passed on March 28, 2002 for recognition of the contribution to the development and growth of the Group by the eligible persons. This scheme expired on March 27, 2007. Under Scheme C, the Board of Directors of the Company may grant share options to the following eligible persons (and their wholly owned companies) of the Company, its subsidiaries and any companies in which the Group holds any equity interest, to subscribe for shares in the Company:

(i) employees; or

(ii) Non-executive Directors (including Independent Non-executive Directors); or

(iii) suppliers or customers; or

(iv) any person or entity that provides research, development or other technological support; or

(v) shareholders.

Share options granted must be taken up within 21 days of the date of grant, upon payment of HK$1.00 in cash by way of consideration for the grant thereof. Share options may be exercised at any time, subject to vesting condition, from the date of grant to the fifth anniversary thereof. The subscription price is set at the highest of: the closing price of the shares on the date of offer of the share option; or the average closing price of shares as stated in the daily quotations sheets issued by the Stock Exchange for the five trading days immediately preceding the date of offer; or the nominal value of shares on the date of offer.

124 Techtronic Industries Co. Ltd. Annual Report 2007 50. Share Options (continued) Scheme adopted on May 29, 2007 (“Scheme D”) Following the termination of Scheme C, a new share option scheme was adopted pursuant to a resolution passed on May 29, 2007 for recognition of the contribution to the development and growth of the Group by the eligible persons. This scheme will expire on May 28, 2017. Under Scheme D, the Board of Directors of the Company may grant share options to the following eligible persons (and their wholly owned companies) of the Company, its subsidiaries and any companies in which the Group holds any equity interest, to subscribe for shares in the Company:

(i) employees; or

(ii) Non-executive Directors (including Independent Non-executive Directors or officer); or

(iii) secondees; or

(iv) business partner, agent, consultant; or

(v) suppliers or customers; or

(vi) any person or entity that provides research, development or other technological support; or

(vii) shareholders.

Share options granted must be taken up within 21 days of the date of grant, upon payment of HK$1.00 in cash by way of consideration for the grant thereof. Share options may be exercised at any time, subject to vesting condition, from the date of grant to the tenth anniversary thereof. The subscription price is set at the highest of: the closing price of the shares on the date of offer of the share option; or the average closing price of shares as stated in the daily quotations sheets issued by the Stock Exchange for the five trading days immediately preceding the date of offer; or the nominal value of shares on the date of offer.

Techtronic Industries Co. Ltd. Annual Report 2007 125 Notes to the Consolidated Financial Statements

50. Share Options (continued) The following table discloses movements in the Company’s share options during the year:

Date of Share option Outstanding Granted Exercised Lapsed Outstanding Share share options scheme at beginning during during during at end Subscription option holders granted category of the year the year the year the year of the year price Exercise period HK$

Directors Mr Horst Julius 28.6.2002 Scheme C 25,728,000 — 25,728,000 — — 3.600 28.6.2002 – 27.6.2007 Pudwill 19.9.2003 Scheme C 560,000 — 560,000 — — 8.685 19.9.2003 – 18.9.2008 25.2.2004 Scheme C 400,000 — — — 400,000 12.170 25.2.2004 – 24.2.2009 Dr Roy Chi Ping 28.6.2002 Scheme C 12,864,000 — 12,864,000 — — 3.600 28.6.2002 – 27.6.2007 Chung JP 19.9.2003 Scheme C 560,000 — — — 560,000 8.685 19.9.2003 – 18.9.2008 25.2.2004 Scheme C 400,000 — — — 400,000 12.170 25.2.2004 – 24.2.2009 Mr Kin Wah Chan 1.3.2004 Scheme C 1,000,000 — — — 1,000,000 12.525 1.3.2004 – 28.2.2009 Mr Chi Chung Chan 17.7.2003 Scheme C 1,000,000 — — — 1,000,000 7.625 17.7.2003 – 16.7.2008 19.9.2003 Scheme C 500,000 — — — 500,000 8.685 19.9.2003 – 18.9.2008 25.2.2004 Scheme C 1,000,000 — — — 1,000,000 12.170 25.2.2004 – 24.2.2009 1.3.2004 Scheme C 500,000 — — — 500,000 12.525 1.3.2004 – 28.2.2009 Mr Stephan Horst 1.3.2004 Scheme C 100,000 — — — 100,000 12.525 1.3.2004 – 28.2.2009 Pudwill Mr Joel Arthur 17.7.2003 Scheme C 200,000 — — — 200,000 7.625 17.7.2003 – 16.7.2008 Schleicher 25.2.2004 Scheme C 100,000 — — — 100,000 12.170 25.2.2004 – 24.2.2009 Mr Christopher 17.7.2003 Scheme C 100,000 — — — 100,000 7.625 17.7.2003 – 16.7.2008 Patrick Langley OBE 25.2.2004 Scheme C 100,000 — — — 100,000 12.170 25.2.2004 – 24.2.2009 Mr Manfred 7.2.2005 Scheme C 100,000 — — — 100,000 17.750 7.2.2005 – 6.2.2010 Kuhlmann

Total for directors 45,212,000 — 39,152,000 — 6,060,000

126 Techtronic Industries Co. Ltd. Annual Report 2007 50. Share Options (continued) The following table discloses movements in the Company’s share options during the year: (continued)

Employees 30.4.2002 Scheme C 1,215,000 — 1,215,000 — — 3.200 30.4.2002 – 29.4.2007 17.7.2003 Scheme C 2,674,000 — 20,000 48,000 2,606,000 7.625 17.7.2003 – 16.7.2008 19.9.2003 Scheme C 204,000 — — — 204,000 8.685 19.9.2003 – 18.9.2008 1.3.2004 Scheme C 5,897,000 — — 813,000 5,084,000 12.525 1.3.2004 – 28.2.2009 14.4.2004 Scheme C 200,000 — — — 200,000 12.950 14.4.2004 – 13.4.2009 5.5.2004 Scheme C 300,000 — — 200,000 100,000 11.050 5.5.2004 – 4.5.2009 7.6.2004 Scheme C 200,000 — — — 200,000 12.000 7.6.2004 – 6.6.2009 2.10.2004 Scheme C 1,000,000 — — — 1,000,000 15.350 2.10.2004 – 1.10.2009 13.12.2004 Scheme C 250,000 — — — 250,000 15.710 13.12.2004 – 12.12.2009 17.1.2005 Scheme C 150,000 — — 150,000 — 16.520 17.1.2005 – 16.1.2010 7.2.2005 Scheme C 100,000 — — — 100,000 17.750 7.2.2005 – 6.2.2010 7.4.2005 Scheme C 200,000 — — — 200,000 17.210 7.4.2005 – 6.4.2010 27.4.2005 Scheme C 25,000 — — — 25,000 17.660 27.4.2005 – 26.4.2010 10.5.2005 Scheme C 200,000 — — 200,000 — 17.200 10.5.2005 – 9.5.2010 1.6.2005 Scheme C 20,000 — — — 20,000 17.420 1.6.2005 – 31.5.2010 17.6.2005 Scheme C 250,000 — — — 250,000 17.950 17.6.2005 – 16.6.2010 27.6.2005 Scheme C 500,000 — — — 500,000 19.200 27.6.2005 – 26.6.2010 1.1.2006 Scheme C 300,000 — — — 300,000 18.690 1.1.2006 – 31.12.2010 1.3.2006 Scheme C 3,564,000 — — 287,000 3,277,000 13.970 1.3.2006 – 28.2.2011 10.3.2006 Scheme C 150,000 — — 150,000 — 14.350 10.3.2006 – 9.3.2011 25.4.2006 Scheme C 20,000 — — — 20,000 13.700 25.4.2006 – 24.4.2011 15.6.2006 Scheme C 200,000 — — — 200,000 10.270 15.6.2006 – 14.6.2011 17.6.2006 Scheme C 350,000 — — — 350,000 10.550 17.6.2006 – 16.6.2011 3.7.2006 Scheme C 25,000 — — — 25,000 10.700 3.7.2006 – 2.7.2011 4.10.2006 Scheme C 75,000 — — — 75,000 11.628 4.10.2006 – 3.10.2011 1.11.2006 Scheme C 1,500,000 — — — 1,500,000 11.252 1.11.2006 – 31.10.2011 3.11.2006 Scheme C 100,000 — — — 100,000 11.480 3.11.2006 – 2.11.2011 8.11.2006 Scheme C 30,000 — — — 30,000 12.200 8.11.2006 – 7.11.2011 4.12.2006 Scheme C 150,000 — — — 150,000 10.952 4.12.2006 – 3.12.2011 13.12.2006 Scheme C 20,000 — — — 20,000 10.560 13.12.2006 – 11.12.2011 1.1.2007 Scheme C — 150,000 — — 150,000 10.080 1.1.2007 – 31.12.2011 6.3.2007 Scheme C — 7,460,000 — 130,000 7,330,000 10.572 6.3.2007 – 5.3.2012 20.7.2007 Scheme D — 300,000 — — 300,000 10.060 20.7.2007 – 19.7.2012 24.8.2007 Scheme D — 2,740,000 — 30,000 2,710,000 8.390 24.8.2007 – 23.8.2017 16.10.2007 Scheme D — 75,000 — — 75,000 8.810 16.10.2007 – 17.10.2017 7.11.2007 Scheme D — 40,000 — — 40,000 8.088 7.11.2007 – 6.11.2017 23.11.2007 Scheme D — 500,000 — — 500,000 7.578 23.11.2007 – 22.11.2017

Total for employees 19,869,000 11,265,000 1,235,000 2,008,000 27,891,000

Total for all categories 65,081,000 11,265,000 40,387,000 2,008,000 33,951,000

Techtronic Industries Co. Ltd. Annual Report 2007 127 Notes to the Consolidated Financial Statements

50. Share Options (continued)

The following table discloses details of the Company’s share options held by employees (including directors) and movements in such holdings during the year:

Lapsed or Granted Exercised cancelled Outstanding during the during the during Outstanding at Option type at 1.1.2007 year year the year 12.31.2007

Scheme C 65,081,000 7,910,000 40,387,000 1,978,000 30,626,000 Scheme D — 3,355,000 — 30,000 3,325,000

65,081,000 11,265,000 40,387,000 2,008,000 33,951,000

Lapsed or Granted Exercised cancelled Outstanding during the during the during Outstanding at Option type at 1.1.2006 year year the year 12.31.2006

Scheme B 300,000 — 300,000 — — Scheme C 61,800,000 6,484,000 3,203,000 — 65,081,000

62,100,000 6,484,000 3,503,000 — 65,081,000

Details of the share options held by the directors included in the above table are as follows:

Outstanding at Granted during Exercised Outstanding at January 1 the year during the year Reclassification December 31

2007 45,212,000 — 39,152,000 — 6,060,000

Outstanding at Granted during Exercised Outstanding at January 1 the year during the year Reclassification December 31

2006 45,312,000 — 200,000 100,000* 45,212,000

The weighted average closing price of the Company’s shares immediately before various dates on which the share options were exercised was HK$10.98 (2006: HK$14.81).

* Mr. Stephan Horst Pudwill has been appointed as a Group Executive Director of the Company since May, 2006. The 100,000 share options held by him was classified under the category of “Employees” previously.

128 Techtronic Industries Co. Ltd. Annual Report 2007 50. Share Options (continued) The following significant assumptions were used to derive the fair values using the Black-Scholes option pricing model:

Expected volatility based on Hong Kong Expected Exercise Expected historical Exchange annual price life of volatility of Fund dividend Date of grant HK$ share options share prices Notes rate yield For the year ended December 31, 2007 1.1.2007 10.080 3 years 35% 4.060% 1.5% 6.3.2007 10.572 3 years 35% 4.100% 1.5% 20.7.2007 10.060 3 years 35% 4.225% 1.5% 24.8.2007 8.390 3 years 35% 4.309% 1.5% 16.10.2007 8.810 3 years 35% 4.560% 1.5% 7.11.2007 8.088 3 years 35% 4.572% 1.5% 23.11.2007 7.578 3 years 35% 4.571% 1.5%

For the year ended December 31, 2006 1.1.2006 18.690 3 years 35% 4.060% 1.5% 1.3.2006 13.970 3 years 35% 4.100% 1.5% 10.3.2006 14.350 3 years 35% 4.225% 1.5% 25.4.2006 13.700 3 years 35% 4.309% 1.5% 15.6.2006 10.270 3 years 35% 4.560% 1.5% 17.6.2006 10.550 3 years 35% 4.572% 1.5% 3.7.2006 10.700 3 years 35% 4.571% 1.5% 4.10.2006 11.628 3 years 35% 3.791% 1.5% 1.11.2006 11.252 3 years 35% 3.692% 1.5% 3.11.2006 11.480 3 years 35% 3.727% 1.5% 8.11.2006 12.200 3 years 35% 3.774% 1.5% 4.12.2006 10.952 3 years 35% 3.548% 1.5% 13.12.2006 10.560 3 years 35% 3.563% 1.5%

Techtronic Industries Co. Ltd. Annual Report 2007 129 Notes to the Consolidated Financial Statements

50. Share Options (continued) The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the volatility of the share price. Because changes in subjective input assumptions can materially affect the fair value estimate, in the directors’ opinion, the existing model does not necessarily provide a reliable single measure of the fair value of the share options.

The weighted average closing price of the Company’s shares on various dates of grant was HK$9.71 (2006: HK$13.00) per option.

Expected volatility was determined by using the historical volatility of the Company’s share price over the previous three years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

The Group recognised a total expense of HK$16,155,000 for the year ended December 31, 2007 (2006: HK$7,091,000) in relation to share options granted by the Company.

The fair values of the share options granted in the current year measured as at various dates of grant ranged from HK$1.56 to HK$2.61 (2006: ranged from HK$2.46 to HK$4.72) per option. The weighted average fair value of the share options granted in the current year was HK$2.41 (2006: HK$3.03) per option.

The share options are vested and exercisable in whole or in part in trenches within 3 years.

51. Capital Commitments

The Group The Company 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000

Capital expenditure in respect of the purchase of property, plant and equipment and licence: Contracted for but not provided 320,180 516,648 19,974 22,446

Authorised but not contracted for 71,165 103,443 — —

130 Techtronic Industries Co. Ltd. Annual Report 2007 52. Related Party Transactions During the year, the Group entered into the following transactions with related parties:

2007 2006 HK$’000 HK$’000

Management fee income 470 464 Management fee expenses 743 420 Interest income received 10,163 9,911 Sales income 352 91,308 Equipment charge income 2,166 2,166 Royalty income — 46,800

The remuneration of directors and other members of key management during the year was as follows:

2007 2006 HK$’000 HK$’000

Short-term benefits 134,659 122,314 Post-employment benefits 1,357 2,510 Termination benefits 1,137 6,240 Share-based payments 7,395 5,976

144,548 137,040

Details of the balances with related parties are set out in the consolidated balance sheet, balance sheet and Note 22.

Techtronic Industries Co. Ltd. Annual Report 2007 131 Notes to the Consolidated Financial Statements

53. Particulars of Principal Subsidiaries Particulars of the principal subsidiaries of the Company as at December 31, 2007 and December 31, 2006 are as follows:

Proportion of Place of Issued and nominal value of incorporation/ fully paid issued capital held Name of subsidiary operation share capital by the Company Principal activities Directly Indirectly %%

AEG Electric Tools GmbH Germany €20,451,675 — 100 Trading and manufacture (formerly known as of power equipment A&M Electric Tools GmbH) products Baja, Inc.* USA US$7,391,000 — 75 Trading of outdoor power equipment products Digiwireless Limited Hong Kong HK$2 100 — Investment holding DreBo Werkzeugfabrik GmbH Germany €1,000,000 — 100 Trading and manufacture of power equipment products Homelite Asia (Dongguan) The PRC US$2,100,000 — 100 Manufacture of outdoor Company Limited power equipment products Homelite Asia Ltd. The British Virgin US$1 — 100 Investment holding Islands (“BVI”) Homelite Consumer USA US$10 — 100 Trading of outdoor power Products, Inc. equipment products Homelite Far East Company Hong Kong HK$2 100 — Trading of outdoor power Limited equipment products Homelite Technologies Ltd. Bermuda US$12,000 100 — Investment holding Hoover, Inc* USA US$70,000,000 — 100 Trading and manufacture of floor care products MacEwen Property Co. Inc. USA US$100 100 — Property holding Marco Polo Industries & Hong Kong HK$100,000 100 — Trading of household Merchandising Company electronic and Limited electrical products Milwaukee Electric Tool USA US$50,000,000 — 100 Trading and manufacture Corporation of power equipment products One World Technologies, Inc. USA US$10 — 100 Investment holding OWT France SAS France €1,750,000 — 100 Investment holding OWT Industries, Inc. USA US$10 — 100 Manufacture of electric components and power equipment products Royal Appliance International Germany €2,050,000 100 — Trading of household GmbH electronic and electrical products Royal Appliance Mfg. Co. USA US$1 — 100 Trading and manufacture of floor care products

132 Techtronic Industries Co. Ltd. Annual Report 2007 53. Particulars of Principal Subsidiaries (continued)

Proportion of Place of Issued and nominal value of incorporation/ fully paid issued capital held Name of subsidiary operation share capital by the Company Principal activities Directly Indirectly %%

Ryobi Technologies GmbH Germany €500,000 100 — Trading of electric power equipment products Ryobi Technologies S.A.S. France €14,919,832 — 100 Trading of electric power equipment products Ryobi Technologies (UK) The United Kingdom £4,000,000 — 100 Trading of electric power Limited equipment products Sang Tech Industries Limited Hong Kong HK$1,000,000 100 — Manufacture of plastic parts Santo Industries Limited Hong Kong HK$2,000,000 100 — Manufacture of metallic parts Solar Wide Industrial Limited Hong Kong HK$2,000,000 75.725 — Manufacture of electronic products Startel Tools and Electronics South Africa ZAR100 60 — Trading of electric power Company (Pty) Ltd* equipment products Techpower Engineering Hong Kong HK$2 100 — Manufacture of Company Limited components Techtronic Appliances Hong Kong HK$2 — 100 Trading and manufacture (Hong Kong) Limited of floor care products Techtronic Appliances BVI US$1 — 100 Investment holding International Ltd. Techtronic Industries Australia A$5,500,000 100 — Trading of electric power Australia Pty. Ltd. equipment products Techtronic Industries The PRC US$12,500,000 — 100 Manufacture of power (Dongguan) Co. Ltd. equipment products Techtronic Industries New Zealand NZ$1,165,500 100 — Trading of electric power N.Z. Ltd. equipment products Techtronic Industries USA US$10 98.4 1.6 Investment holding North America, Inc. Techtronic Industries Taiwan NT$5,000,000 100 — Provision of inspection (Taiwan) Co. Ltd. services TTI Investments (Dongguan) Hong Kong HK$2 100 — Investment holding Company Limited Vax Appliances (Australia) Australia A$1,200,008 100 — Assembly and distribution Pty. Ltd. of floor care products Vax Limited The United Kingdom £33,000 100 — Assembly, procurement and distribution of floor care products

Techtronic Industries Co. Ltd. Annual Report 2007 133 Notes to the Consolidated Financial Statements

53. Particulars of Principal Subsidiaries (continued) The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

None of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.

* Subsidiaries which were acquired during 2007. 54. Particulars of Associates Particulars of the associates as at December 31, 2007 and December 31, 2006 are as follows:

Proportion of Issued and nominal value of Place of incorporation/ fully paid issued capital held Name of associate operation share capital by the Company Principal activities Directly %

Gimelli International The Cayman Islands US$6,250 40.8 Investment holding (Holdings) Limited Precision Technology Bermuda US$12,000,000 25 Manufacture of power Industries Limited equipment products

55. Presentation and Functional Currencies The functional currency of the Company is United States dollars. The presentation currency of the Group is Hong Kong dollars as the Company is a public limited company incorporated in Hong Kong. The financial statements include the consolidated income statement, consolidated balance sheet and consolidated cashflow statement which are presented in the functional currency of the Company for reference only which have been arrived at based on the fixed exchange rate of HK$7.8 to US$1.0.

134 Techtronic Industries Co. Ltd. Annual Report 2007 Financial Summary

Results

Year ended December 31, 2003 2004 2005 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (As restated)

Turnover 13,182,808 16,304,140 22,358,387 21,822,597 24,774,987

Profit before restructuring costs, other restructuring and transition costs, share of results of associates and taxation 769,228 1,076,344 1,223,344 1,263,981 912,460 Restructuring costs — — — — (668,481) Other restructuring and transition costs — — — — (74,537) Share of results of associates (987) (845) (6,463) (895) (270)

Profit before taxation 768,241 1,075,499 1,216,881 1,263,086 169,172 Taxation (66,811) (108,829) (157,714) (184,017) (38,999)

Profit for the year 701,430 966,670 1,059,167 1,079,069 130,173

Attributable to: Equity holders of the parent 673,973 926,356 1,018,984 1,071,864 125,257 Minority interests 27,457 40,314 40,183 7,205 4,916

Profit for the year 701,430 966,670 1,059,167 1,079,069 130,173

Basic earnings per share 51.56 cents 69.28 cents 73.53 cents 73.18 cents 8.41 cents

Assets and Liabilities

At December 31, 2003 2004 2005 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (As restated)

Total assets 9,646,268 13,903,324 20,374,741 21,320,301 24,969,446 Total liabilities 7,087,010 10,367,476 14,141,732 14,242,326 17,958,018

2,559,258 3,535,848 6,233,009 7,077,975 7,011,428

Equity attributable to equity holders of the parent 2,512,884 3,453,816 6,112,339 6,996,530 6,920,125 Minority interests 46,374 82,032 120,670 81,445 91,303

2,559,258 3,535,848 6,233,009 7,077,975 7,011,428

Techtronic Industries Co. Ltd. Annual Report 2007 135 Corporate Information

Board of Directors List Information The Stock Exchange of Hong Kong Limited Group Executive Directors Ordinary Shares (stock code: 669) Mr Horst Julius Pudwill Zero Coupon Convertible Bonds 2009 (code: 2591) Chairman ADR Level 1 Programme (symbol: TTNDY)

Dr Roy Chi Ping Chung JP Share Registrar and Transfer Office Vice Chairman Tricor Secretaries Limited 26/F, Tesbury Centre Mr Joseph Galli Jr 28 Queen’s Road East Chief Executive Officer Hong Kong Tel: (852) 2980 1888 Mr Kin Wah Chan Mr Chi Chung Chan ADR Depositary Mr Stephan Horst Pudwill The Bank of New York

Non-executive Director Principal Bankers Mr Vincent Ting Kau Cheung The Hongkong and Shanghai Banking Corporation Limited Citibank N.A. Independent Non-executive Directors Standard Chartered Bank Mr Joel Arthur Schleicher Hang Seng Bank Ltd. Mr Christopher Patrick Langley OBE Mr Manfred Kuhlmann Solicitors Mr Peter David Sullivan Vincent T K Cheung Yap & Co

Auditors Financial Calendar 2008 Deloitte Touche Tohmatsu April 16: Announcement of 2007 annual results May 27: Last day to register for 2007 final dividend Qualified Accountant May 28-30: Book closure period Mr Frank Chi Chung Chan May 30: Annual General Meeting June 30: Six months interim period end Company Secretary July 31: Final dividend payment Mr Frank Chi Chung Chan December 31: Financial year end Trademarks All trademarks used are intellectual property of their respective Investor Relations Contact owners and are protected under trademark law. Investor Relations and Communications Techtronic Industries Co. Ltd. The use of the trademark Ryobi® pursuant to a license granted by 24/F., CDW Building Ryobi Limited. 388 Castle Peak Road Tsuen Wan, N.T. AEG® is a registered trademark and its use is pursuant to a License Hong Kong granted by Licentia Patent-Verwaltungs-GmbH. email: [email protected] RIDGID® is a registered trademark of Ridgid, Inc., part of Emerson Professional Tools, a business of St. Louis-based Emerson (NYSE: Website EMR). The orange color used on these products and combination www.ttigroup.com of orange and grey are trademarks for RIDGID® brand power tools. Earnings results, annual/interim reports are available online. Sears®, Craftsman®, and Kenmore® brands are registered trademarks of Sears Brands, LLC. TdA – concept and design www.tda.com.hk TdA – concept and design www.tda.com.hk

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